Narrative
In 2023, the owners of an auto dealership in Doral, FL undertook strategic tax planning to enhance their investment. The property consists of a single 1-story building encompassing 47,700 square feet. Originally constructed in 2002, the auto dealership features a showroom, service bays, offices, and other amenities to serve customers.
The building's exterior showcases modern architectural elements, including corrugated metal siding and aluminum storefront windows and doors. The interior is well-appointed, featuring amenities such as high-efficiency HVAC systems, specialized auto equipment, and contemporary lighting fixtures. The property also includes substantial site improvements such as asphalt paving, landscaping, and site lighting.
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 farm'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: $4,814,222.05
Percentage of Total Depreciable Basis: 20.3%
5-year class life assets identified in this study include:
- Specialized auto equipment and tools
- Furniture, fixtures and equipment
- Computers and security systems
- Decorative lighting and interior finishes
- Appliances and equipment
15-Year Class Life
Total Depreciation Allocation: $7,221,643.77
Percentage of Total Depreciable Basis: 30.5%
15-year class life assets identified in this study include:
- Site improvements such as asphalt paving, curbs, and fencing
- Exterior signage and lighting
- Landscaping and irrigation systems
39-Year Class Life
Total Depreciation Allocation: $11,627,933.28
Percentage of Total Depreciable Basis: 49.1%
39-year class life assets identified in this study include:
- Building structure and exterior walls
- Roof systems
- Plumbing, electrical and HVAC systems
- Restroom fixtures and partitions
- Doors, windows and basic finishes
Class Life Details:
Summary
The cost segregation study for this auto dealership in Doral, FL 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 auto dealership'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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