The owner of a restaurant building wanted to undergo renovations but didn't have the financial resources to do so. That was until she learned about cost segregation. She had a study done on her building, which uncovered over $425,000 that she put towards the renovations.
Cost segregation is a powerful tax strategy that fundamentally changes how a building owner views their property for tax purposes. It moves beyond the idea that a property is a single entity, recognizing that it is instead comprised of numerous sub-components, such as the heating, ventilation, and air conditioning (HVAC) systems, specialized electrical wiring, and unique plumbing, all of which wear out and lose value at different rates over time. A cost segregation study meticulously breaks down the costs associated with these components, reclassifying them into shorter depreciable life spans (typically 5, 7, or 15 years) instead of the standard 39 years for commercial property. This acceleration of depreciation results in significantly larger tax deductions in the early years of ownership, creating substantial first-year tax savings.
For a restaurant building owner, a cost segregation study can unlock incredible financial potential, transforming initial investment challenges into opportunities. The short-life assets in a restaurant building are particularly numerous and valuable. These often include specialized kitchen plumbing, dedicated electrical systems for cooking equipment, detailed finishings in the dining area, non-structural interior walls, and site improvements like parking lot paving and landscaping. By successfully reclassifying these elements, an owner can realize huge first-year tax savings, often sufficient to fund major capital expenditures.
As demonstrated by the experience of the Japanese restaurant owner in Milwaukee, the savings can be transformative. The owner received over $425,000 in first-year tax savings—a sum that not only fully funded planned renovations but also facilitated multiple, high-value improvements. This capital was used to install new computer and Wi-Fi systems, fund a new kitchen build-out, expand the dining area, and purchase modern customer-facing technology, like ordering tablets. This success story illustrates how having a cost segregation study done by a firm like Engineered Tax Services (ETS) opens up new possibilities for growth and modernization that may have initially seemed financially unfeasible.
Cost Segregation Benefits for Restaurant Building Owners:
- Identifies High-Value Assets: Recognizes and reclassifies numerous short-life assets unique to restaurants, such as specialized plumbing, kitchen ventilation, and dedicated electrical systems.
- Accelerates Depreciation: Moves building components from the standard 39-year commercial life to shorter 5, 7, and 15-year lives.
- Generates Substantial Savings: Provides huge first-year tax savings and immediate cash flow, allowing owners to self-fund major capital projects.
- Funds Renovations and Upgrades: The realized savings can be used to pay for interior renovations, expansion of dining areas, and new kitchen installations.
- Enables Technology Investment: Allows for the immediate investment in modern infrastructure like new computer networks, Wi-Fi systems, and customer ordering technology (e.g., table tablets).
- Opens New Possibilities: Provides the financial liquidity to pursue growth and modernization projects that may have been previously deemed too costly.
If you're interested in hearing more about the Cost Segregation Study Analysis process or would like to request a FREE Benefit Analysis, click the link below and one of our Cost Segregation Experts will contact you.
