Selling a dental practice to a DSO usually trades some cash at closing for equity that may pay later, and Assante Wealth Management plans that equity as money you could lose. On a hypothetical $2 million offer with 30 percent rolled into equity, $600,000 of the price depends on the DSO's next resale.
That rolled piece is tax-deferred only if the deal qualifies under Section 351 or Section 721. The cash part is taxed in the year of sale.
So the question most dentists ask is simple: do I take the bigger number with equity, or the smaller number in cash? The honest answer starts with what each piece is worth after tax, and what it's worth if things go badly.
Below, six sections work through the beliefs sellers commonly hold, one worked example and the steps in order. Assante Wealth Management uses the same lens with every seller: what can go wrong, what can't be undone, and how much room a bad year needs.
By Michael Donovan, AIF — Chief Investment Officer | Reviewed by Hiroshi Tanaka, CFPMichael leads the investment committee, setting strategic asset allocation guidelines and reviewing manager performance quarterly.
If the equity goes to zero and your retirement date doesn't move, you rolled the right amount. If it moves, you rolled too much.
Senior Financial Planner, Assante Wealth Management
Rollover equity is deferred, not tax-free, and only if the structure qualifies under Section 351 or 721. Confirm that before the letter of intent, not after closing.
CPA and Tax Director, Assante Wealth Management
Read the bad-leaver clause first. A $600,000 rollover can become $400,000 or less if health ends work in year two.
CFP® and Lead Advisor, Assante Wealth Management
"The equity part of a DSO deal is tax-free"
People say rollover equity is tax-free. It's tax-deferred, and only when the transaction is structured to qualify under Section 351 (corporation) or Section 721 (partnership or LLC). If it doesn't qualify, the IRS taxes the equity at closing as if it were cash, even though you can't spend it.
Your basis carries over. For a practice held for decades that's often close to zero, so most of the eventual sale price is taxable gain, just later.
The cash side follows asset-sale rules. Buyer and seller each report the price allocation on IRS Form 8594. Equipment gain up to prior depreciation is ordinary income under Section 1245, and any noncompete payment is ordinary income to you (the buyer amortizes it over 15 years).
Medicare adds a quieter wrinkle. The Medicare lookback sets IRMAA from MAGI two years earlier, so a closing at 62 doesn't touch Part B. An equity payout at 67 can raise premiums at 69. For 2026, a single filer's Part B premium runs from $202.90 a month up to $689.90 a month in the highest-income tier, per CMS.
Deferred is not forgiven. Have a CPA confirm the rollover qualifies under Section 351 or Section 721 before you sign, because an unqualified rollover is taxed at closing on money you can't touch.
"The DSO's next sale will double my equity"
Equity buys a shot at a second payday, and nobody can promise when it comes. The table below sets all cash, the cash-and-equity split and keeping the practice side by side on the same five points. Omar's example follows it.
Hypothetical: Omar, 36, a single hospitalist at a nonprofit hospital two years out of residency, is helping his father read a DSO offer. His father, a 62-year-old general dentist, can take $1.8 million all cash, or $2 million split into $1.4 million cash plus $600,000 rollover equity.
Assuming a 25 percent blended tax for illustration, all cash nets $1,350,000 and the split nets $1,050,000 now, which is $300,000 less. Assuming 5 percent a year, that $300,000 would grow to about $330,750 in two years or about $382,900 in five.
After the same 25 percent tax, the equity must sell for about $441,000 if the DSO resells in year two, or about $510,500 in year five, just to tie. ($330,750 divided by 0.75 is $441,000; $382,900 divided by 0.75 is about $510,500.) At $400,000 the split loses. At zero it's $300,000 behind before growth.
The order of payment matters too. Preferred equity and DSO debt get paid before common rollover units, so a resale at a flat price can still shrink your piece. Private DSO units can fall in value, and a seller who rolled in $600,000 can walk away with a smaller check than that.
In exchange for that shot, you give up $300,000 of after-tax cash today, plus liquidity and control over timing. A delay from year two to year five raises the bar by about $69,500 in required sale value. The deal only beats all-cash if the equity keeps most of its value and the resale arrives on time.
Assante Wealth Management lists rolled equity as a separate "maybe" line in the client's one-page plan, outside the retirement total. If that line drops to zero, the retirement date still holds. You can test your own numbers in our calculator.
Hypothetical: reading the offer with Omar
What the split gives up
| Criterion | All cash ($1.8M) | Cash plus equity ($2M) | Waiting |
|---|---|---|---|
| After-tax cash today | $1,350,000 | $1,050,000 | $0 from sale |
| Cash at year two | About $1,488,750 grown | $1,050,000 plus resale | Depends on later offer |
| Cash at year five | About $1,723,000 grown | $1,050,000 plus resale | Depends on later offer |
| Worst case | Price is fixed | Equity wiped out | Practice value falls |
| Control over timing | Full | Set by DSO | Yours, until health changes |
"I can sell my DSO shares whenever I need cash"
Not usually. Rollover units typically come with transfer restrictions, no right to make the DSO buy them back, and drag-along terms that set the exit date for you. Most also carry leaver clauses tied to a three- to five-year employment agreement. If disability or burnout ends work early, a "bad leaver" buyback at the lower of cost or fair value can turn $600,000 into much less (so read the buyback terms before the price).
Which parts of a DSO deal can I still change after closing?
Very few. The noncompete, the price allocation, the rollover structure and the employment term can't be undone after signing. How you invest the after-tax cash, how much you hold in reserve and when you claim Social Security can still change.
That's why the work happens before the signature, in this order.
Step 1, before the letter of intent: ask the DSO for the equity waterfall (who gets paid first in a resale) and how many times its own owners have resold it. Then decide how much of the price could vanish with your retirement date unchanged, and ask for that much equity, not more.
Step 2, during drafting: have a CPA confirm the rollover qualifies under Section 351 or Section 721, and have an attorney negotiate the leaver and disability terms. Agree the Form 8594 allocation (goodwill, equipment, noncompete) at the same time.
Step 3, at closing: keep the rollover paperwork and the signed allocation together, then set quarterly estimates for the cash gain.
Two mistakes tend to arrive together. Counting $600,000 of rollover equity as retirement money already in hand (often at an assumed doubling to $1.2 million) is one. Signing a five-year employment agreement without reading its leaver clause is the other. If a health problem forces an exit in year two and the buyback pays the lower of cost or a $400,000 fair value, the seller receives $400,000 against the $1.2 million the plan counted on: an $800,000 hole before tax.
Run this against your own accounts:
Before the letter of intent
What is fixed and what is reversible
Shortcut: roll into DSO equity only the amount you could lose completely without pushing back your retirement date. If the after-tax cash at closing can't fund retirement alone, ask for more cash and less equity.
- After-tax cash covers retirement without equity
- Two years of spending held outside the deal
- Disability coverage through the employment term
- Equipment depreciation schedule in hand
- Equity payout year checked against Medicare lookback
- Plan for who inherits the units
"Taking the equity is the smart move for every seller"
The usual "take the second bite" advice doesn't fit a seller over 60 with a savings gap the cash alone doesn't close, anyone with a health condition that could end work before the employment term does, or a seller whose spouse would need the money within five years. For them, a lower all-cash price is often the better deal, even when it looks smaller on paper. A seller whose savings already cover retirement can treat the question far more loosely. This page compares cash and equity only; a CPA and a deal attorney need to read the actual documents.
Bring the term sheet and equity waterfall to Assante Wealth Management
Talk to us once a DSO sends a term sheet and before the letter of intent is signed, while the cash-equity split can still move. Bring the term sheet, the draft employment agreement, the depreciation schedule and your last two tax returns. We'll show on one page whether your retirement holds if the equity line goes to zero. For related planning, see our practice transition planning service.
| If this happens | Then | Figure to check |
|---|---|---|
| DSO resells in year two | Equity must reach about $441,000 | $330,750 after tax to beat |
| DSO resells in year five | Equity must reach about $510,500 | $382,900 after tax to beat |
| Equity sells for $400,000, year five | Split trails all-cash | $300,000 vs $382,900 |
| Equity is wiped out | Split trails by $300,000 | Before any growth |
| Health ends work in year two | Leaver clause sets the price | Read buyback terms first |
Plan the equity as money you could lose, and the cash as the money you'll live on.
Your questions about selling a dental practice to a dso, answered
What happens if the DSO is sold again before my employment agreement ends?
Your rollover units are usually carried into the new deal under drag-along terms, often converting to equity in the new buyer or paying out in part. Your employment agreement and leaver clause typically continue. Ask before signing how a second sale treats your units and your contract.
The DSO offered me a higher price if I take 30 percent in equity; should I take it?
Only if the cash alone still funds retirement and you could lose the equity without changing your plans. On a $2 million offer, 30 percent is $600,000 that depends on a resale. Compare the higher price to a lower all-cash bid after tax, not before.
My dad wants to leave me his DSO equity in his will; what would I actually inherit?
You'd inherit units subject to the operating agreement, which often limits who can hold them and may let the DSO buy them back. They're rarely cash you can sell freely. Ask the DSO and an estate attorney how transfers at death are handled.
How is rollover equity taxed when the DSO finally sells?
If the rollover qualified under Section 351 or Section 721, the deferred gain is generally taxed when your units are sold, measured against your carried-over basis. For a long-held practice that basis is often near zero, so most of the payout is taxable. A CPA should model the year.
How many years does DSO rollover equity usually take to turn into cash?
There's no set timeline. The DSO's owners decide when to resell, and your units follow, often several years after closing. Many deals tie your employment to three to five years. That's why we plan the equity as a maybe line, not a dated payment.
Can a DSO equity payout raise my Medicare premiums later?
Yes. Medicare sets IRMAA from MAGI two years earlier, so a large payout at 67 can raise your Part B premium at 69. For 2026 the premium ranges from $202.90 to $689.90 a month depending on income. Timing the payout year with a CPA can help.
Sources and further reading
This is general information, not advice tailored to your finances or circumstances. Investing involves risk, including the possible loss of principal. Before making any decision about money, taxes or your practice, talk with a professional who knows your full situation.