Case Study: Cost Segregation Analysis for a Standalone Restaurant in Pocatello, ID

Narrative

In 2023, the owners of a standalone restaurant in Pocatello, ID, undertook strategic tax planning to enhance their investment. The property consists of a single-story building encompassing 2,650 square feet. Originally constructed in 2007, the restaurant caters to a variety of guests.

The building's exterior showcases a blend of modern and classic architectural elements, including durable wood siding and large storefront windows. The interior is well-appointed, featuring amenities such as high-efficiency HVAC systems, tankless water heaters, and contemporary lighting fixtures. The property also includes a range of kitchen equipment and an outdoor canopy.

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:

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