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Surgery centers, office space and tax reform. Still confused

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  • Surgery centers, office space and tax reform. Still confused

    A few of the posts have some brief mentions about this, but not quite what I'm hoping to get answered.

    I have 2 separate ambulatory surgery center investments and 1 investment in medical office space.

    If I create an LLC for these 3 entities as a passive investment corporation, can I take advantage of the tax reform on pass through businesses?

    I'm thinking these are considered passive, but perhaps they are not, since I operate at one of these and my wife operates at the other one?

    If it helps to answer the question, our AGI is well above the 415K limit on pass through.  I've read Kitces article and the Physician on FIRE article and I still am at a loss.  Sorry I'm new to all this stuff!

    Any help would be greatly appreciated!

  • #2
    I would also like to know the answer to this! Thanks!


    Edit: This might be helpful:

    I don't see why you can't fracture of the real estate into separate LLCs. While you are at it, lease all of your surgical equipment and accounting/billing services to your medical practice as well.


    • #3
      Aren't those ASCs LLCs?


      • #4
        I had similar questions, and my research/slogging through the text of the bill led me to the following conclusions:

        1) If taxable income<157.5k/315k, 199A deduction applies to qualified business income, full stop, no limitations.

        2) If taxable income >315k MFJ, the next step is to determine if QBI comes from a "specified service," eg being a physician or dentist. If so, any 199A deduction on that service income is reduced by 1%/1k income, phasing out completely at 415k MFJ. In addition, the amount of the deduction

        3) If taxable income >315k, then a complex set of rules involving w2 wages paid and/or cost of assets applies which determines the maximum allowable deduction. This applies regardless of the source of the QBI (eg specified vs nonspecified).

        4) The wording of the law is ambiguous, but it appears that eligibility for the 199A deduction is source-specific, i.e if you had 3 different sources of pass thru income reported in a given year, you could potentially qualify for a deduction for 2 sources and no deduction on the 3rd. This is supported by some of the examples accompanying the bill. This means that a physician who does not qualify for the deduction on their doctoring income can still claim the deduction on sources of non-doctoring income, like real estate or a website.

        5) An LLC or S corp is not necessary to claim the deduction. A sole proprietorship (schedule C), real estate (schedule E) or farming (schedule F) will also work.

        So my conclusion is that you should be able to take a deduction on income generated by ownership of the properties (rents, fees etc), but would not qualify for a deduction on any medical practice you performed there, since you stated that your joint income will be over the 415k limit.

        If anybody has evidence that I messed up, especially in regards to point 4), I would love to hear about it.


        • #5
          I am glad someone asked this question. I am in a similar situation-income from a surgery center paid on a K-1and rest of the income on a W-2. Would love to know if the next tax rules will affect the tax on the surgery center income (currently paid at my marginal rate).


          • #6
            It will definitely take extra steps such as obtaining the cost basis of assets like buildings, imaging equipment etc as well as any w2 wages paid out, but the payoff for doing so is potentially large. I suspect many physicians are in this situation, with ASC/imaging center/residential real estate income that could benefit from this deduction.