Case Study: Cost Segregation Analysis for a Fast-Food Restaurant in Dayton, Texas

Narrative

In 2024, the owners of a fast-food restaurant in Dayton, Texas undertook strategic tax planning to enhance their investment. The property consists of a single-story building encompassing 2,100 square feet. Originally constructed in 2023, the restaurant features modern amenities and equipment designed for efficient food service operations.

The building's exterior showcases a blend of commercial architectural elements, including brick veneer, stucco finishes, and aluminum storefront systems. The interior is well-appointed with specialized restaurant equipment, kitchen facilities, and customer service areas. The property also includes a drive-thru window system and various site improvements for customer parking and access.

Objective

The primary objective of the cost segregation study was to identify and reclassify specific building components into shorter depreciation life categories to optimize tax benefits through accelerated depreciation. The analysis aimed to provide both immediate and long-term financial advantages.

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Methodology

ETS employed a detailed, engineering-based approach, which included:

1. Physical Inspection: conducting a thorough site visit to identify and photograph the property's components
2. Document Review: examining architectural plans, construction documents and accounting records
3. Cost Analysis: applying engineering principles to allocate costs to specific asset classifications
4. Depreciation Calculation: calculating depreciation using IRS-accepted methods such as the Modified Accelerated Cost Recovery System (MACRS)

Asset Allocation

5-Year Class Life

Total Depreciation Allocation: $383,898.37 

Percentage of Total Depreciable Basis: 21.24%

5-year class life assets identified in this study include:

• Kitchen equipment
• Specialized electrical
• Computer/POS systems

15-Year Class Life

Total Depreciation Allocation: $426,318.73

Percentage of Total Depreciable Basis: 23.59%

15-year class life assets identified in this study include:

• Site improvements
• Paving
• Landscaping

39-Year Class Life

Total Depreciation Allocation: $996,874.43 

Percentage of Total Depreciable Basis: 55.16%

39-year class life assets identified in this study include:

• Building structure
• Standard electrical
• Plumbing

Class Life Details:

Summary

The cost segregation study for this Fast-Food Restaurant in Dayton, Texas, demonstrates the substantial financial advantages of strategic tax planning. By reclassifying property components into shorter depreciation categories, the study enabled accelerated depreciation, resulting in maximized tax savings and improved cashflow. This approach not only enhanced the Fast-Food's profitability but also allowed for more efficient capital management and future property upgrades. The case study illustrates how cost segregation can significantly boost the financial performance of real estate investments.