Buying Office Space for Your Dental Practice: Do You Need a Separate LLC?

For many dentists in California, buying office space feels like the next step in building long-term stability. Owning the building where you practice offers financial security and independence from unpredictable landlords. However, a significant question often arises: should you form a separate Limited Liability Company (LLC) to own the property?

Understanding the pros and cons can help you start a productive conversation with your attorney and accountant.

Why Many Dentists Choose a Real Estate LLC

Creating a separate LLC to hold real estate is common among dentists and other healthcare professionals. The structure offers several advantages:

• Asset Protection: By separating the property from the practice, you reduce the risk that a lawsuit against your practice could threaten the building. The LLC creates a legal barrier that helps keep your personal and business assets distinct.
• Liability Separation: If an incident occurs on the premises, such as a slip and fall, the LLC, not your practice entity, typically bears the liability.
• Tax Flexibility: Depending on how the LLC is structured, you can take advantage of deductions and planning strategies that reduce your tax burden.
• Leasing Back to the Practice: One of the biggest benefits is the ability to lease the office back to your practice entity. This allows you to build equity in the property while still deducting rent as a business expense.

How the Structure Works

When you create a separate LLC, it acts as the property owner. Your dental practice entity, whether it’s a professional corporation or professional LLC, then becomes the tenant.

Here’s what the arrangement usually looks like:

1. The real estate LLC holds the deed to the building and is responsible for the mortgage.
2. Your dental practice signs a lease and pays monthly rent to the LLC.
3. The LLC uses the rental income to pay the mortgage, insurance, and property-related expenses.
4. Any leftover income may be distributed to you as the LLC owner.

This setup keeps the property and the practice financially distinct, while still allowing you to benefit from both.

Long-Term Benefits of a Separate LLC

Dentists who choose this structure often do so with long-term goals in mind. Some of the potential benefits include:

• Retirement Planning: You can retain ownership of the building even if you sell your practice. The new dentist can lease the office from you, providing a steady retirement income.
• Added Value in a Sale: Buyers are often more interested in acquiring practices that have favorable lease arrangements. Owning the property through a separate LLC gives you flexibility in structuring the deal.
• Equity Growth: Over time, you pay down the mortgage while the property (ideally) appreciates in value. That can provide a significant financial asset, whether or not you continue practicing.

Potential Drawbacks to Consider

While a separate LLC offers advantages, it’s not without downsides. Before moving forward, be mindful of:

• Added Costs: Setting up and maintaining an LLC involves filing fees, annual franchise taxes in California, and possibly higher accounting expenses.
• Administrative Requirements: You’ll need to keep separate books, records, and bank accounts to maintain liability protection.
• State-Specific Rules: California has its own rules and taxes for LLCs. For example, the annual minimum franchise tax is currently $800, which adds to your operating costs.

These factors can make a real estate LLC less appealing for some dentists, particularly those early in their careers or practicing in highly competitive areas where cash flow is tighter.

Getting Professional Guidance

Deciding whether to form a separate LLC to own your dental office property is more than a legal question—it’s also a financial one. The right choice depends on your personal goals, your practice’s financial health, and the real estate market where you plan to buy.

At Polished Legal, we help California dentists weigh these factors and structure their businesses in ways that protect their investments and support long-term growth. We’ll work with your accountant to make sure your legal and financial strategies align.

Making the Right Choice With Polished Legal

Owning your office space can be a wise move for your dental career, but whether you should form a separate LLC depends on your priorities, finances, and long-term plans. At Polished Legal, we guide dentists in Los Angeles and across California through these decisions so they can protect their investments and grow with confidence.

If you’re considering buying office space for your practice, contact Polished Legal today. We’ll help you evaluate your options and create a strategy that sets you up for lasting success.