How Much Rent Should You Charge Yourself? Tax Considerations in New York
October 26, 2026
Owning the building that houses your dental practice can feel like the best of both worlds, until you have to decide what your practice should pay you each month. The short answer is fair market rent, meaning the amount an unrelated tenant would pay for the same space, because charging too much or too little can create tax problems that are costly to unwind.
LLI Advisory Group helps New York dentists structure these arrangements so the practice and the property each carry their fair share. As dental CPAs serving New York City, our team reviews the lease, the entities involved, and your long-term goals before recommending a rent figure that holds up to scrutiny.
Why Fair Market Rent Matters
When you rent space to your own practice, you sit on both sides of the deal. The rent your practice pays is typically a deductible business expense, and the rent your property entity collects is income to you. Because you control both numbers, the IRS may look closely at whether the amount reflects a real market arrangement or a way to shift income.
A rent that runs too high can draw questions about inflated deductions, while one that runs too low may leave value on the table and complicate a future sale. Gerard Iacovano, CPA, puts it simply: “The financial statements tell the story.” A rent that matches the local market keeps that story clean for lenders, buyers, and tax authorities alike.
Federal Tax Rules That Shape Your Rent Decision
Two federal issues come up in nearly every self-rental conversation we have with dentists.
The Self-Rental Rule
Rental income is usually treated as passive, but there is an exception when you rent property to a business in which you materially participate, such as your own practice. In that case, net rental profit is generally treated as nonpassive, so it typically cannot absorb passive losses from other investments. Many owners do not learn about this rule until their tax bill comes back higher than expected.
Rent Versus Salary
If your practice is an S corporation, rent paid to your property entity is not subject to payroll taxes the way wages are. That can make a higher rent look appealing, but you still need to pay yourself reasonable compensation for the dentistry you perform. Our tax planning for dental practices balances rent, salary, and distributions so each one can be defended.
New York City Taxes to Watch
Location adds another layer. According to New York City’s MyCity Business portal, businesses in Manhattan south of 96th Street owe the Commercial Rent Tax when annual rent reaches $250,000 or more. The city also makes clear that the tax still applies when you use space in a building owned by a corporation where you are an officer or shareholder, so renting from yourself does not remove the obligation.
That means the rent you set can affect more than your federal return. For a Manhattan practice near that threshold, a modest change in rent may decide whether the city tax applies at all. A careful review of the numbers before you sign the lease can help you avoid surprises later.
How to Set a Rent You Can Defend
A defensible rent comes from evidence, not a round number chosen at the kitchen table. When we help dentists set a figure, we look at several key factors:
- Comparable leases: rents for similar medical or dental space nearby.
- Professional appraisal: an independent opinion of market rent from a qualified appraiser.
- Written lease terms: who pays property taxes, insurance, and maintenance.
- Regular reviews: updates to the rent as local market rates change over time.
Keeping this documentation on file protects you if the rent is ever questioned. It also matters when you plan an exit, because a buyer reviewing your office during a practice sale or transition will expect a lease at market terms if you keep the building. If you are still opening your first office, our startup services for new dentists can help you choose the right entities for both the practice and the property from the beginning.
Build a Smarter Lease With LLI Advisory Group
The right rent can lower your overall tax burden, protect your deductions, and make your practice more attractive to future buyers. Our leadership team includes Gerard Iacovano, CPA, who has guided healthcare practitioners on tax and financial planning for more than 30 years, and Domenick Lobifaro, CPA, MST, who advises clients in both the dental and real estate industries.
We plan taxes throughout the year instead of waiting for filing season, so your lease and entity structure can be adjusted before the year closes. Whether you already own your building or are thinking about buying one, reach out to our team to review your rent and see what it means for your New York tax picture.