Narrative
In 2019, the owners of a standalone restaurant building in Brewer, Maine undertook strategic tax planning to enhance their investment. The property consists of a single-story building encompassing 6,001 square feet. Originally constructed in 2003, the restaurant features a single tenant space designed to cater to a variety of guests.
The building's exterior showcases a blend of modern and classic architectural elements, including a durable stone veneer and large storefront windows. The interior is well-appointed, featuring amenities such as high-efficiency HVAC systems, a commercial kitchen with stainless steel appliances and fixtures, and contemporary lighting. The property also includes a canvas awning and signage.
The owners engaged Engineered Tax Services (ETS) to perform a comprehensive cost segregation study of the property. This study aimed to identify and reclassify specific assets, enabling the acceleration of depreciation and optimizing tax benefits. This case study outlines the cost segregation strategy employed and its significant impact on the financial outlook of the property.
Objective
The primary objective of the cost segregation study was to identify and classify the restaurant's assets to optimize the owners' tax savings. By breaking down and reallocating components into shorter depreciation life categories, ETS aimed to provide both immediate and long-term financial benefits through accelerated depreciation.
Methodology
ETS employed a detailed, engineering-based approach, which included:
- Physical Inspection: conducting a thorough site visit to identify and photograph the property's components
- Document Review: examining architectural plans, construction documents and accounting records
- Cost Analysis: applying engineering principles to allocate costs to specific asset classifications
- Depreciation Calculation: calculating depreciation using IRS-accepted methods such as the Modified Accelerated Cost Recovery System (MACRS)
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Discover MoreAsset Allocation
5-Year Class Life
Total Depreciation Allocation: $340,334.40
Percentage of Total Depreciable Basis: 28.67%
5-year class life assets identified in this study include:
- Kitchen equipment (ranges, dishwashers, sinks, exhaust hoods)
- Electrical systems (dedicated outlets, wiring for equipment)
- Plumbing systems (grease traps, gas lines, floor drains)
- Decorative lighting and finishes (pendant lights, wainscoting, chair rail molding)
- Awnings and signage
15-Year Class Life
Total Depreciation Allocation: $291,676.52
Percentage of Total Depreciable Basis: 24.57%
15-year class life assets identified in this study include:
- Site improvements (asphalt paving, fencing, light poles)
- Landscaping and irrigation systems
- Specialized plumbing (grease waste lines, floor drains)
39-Year Class Life
Total Depreciation Allocation: $555,104.09
Percentage of Total Depreciable Basis: 46.76%
39-year class life assets identified in this study include:
- Building structure (foundation, walls, roof)
- HVAC systems
- Plumbing and electrical distribution
- Restroom fixtures and partitions
- Doors, windows and storefront systems
Class Life Details:
Summary
The cost segregation study for this restaurant in Brewer, Maine 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 restaurant'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.
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