Fast Food Restaurant Cost Segregation Study
As the competitive landscape of fast food franchises continues to intensify, maximizing every financial advantage is crucial for investors to stay ahead. In this case study, we'll explore how a strategic cost segregation analysis empowered the investors of a $4.1 million restaurant property to unlock substantial tax savings and improve their cash flow - vital resources for reinvesting in business growth.
By reclassifying eligible assets into accelerated depreciation categories, we were able to frontload over $1.3 million in deductions in the critical first year of ownership. This delivered an immediate federal tax savings of nearly $500k while also freeing up significant capital for the owner to reinvest in enhancing their restaurant operations, exploring new expansion opportunities, or strengthening their financial position.
Fast Food Franchise Property
Total Purchase Price: $4,081,330
In Service Date: October 1, 2022
Goal: Accelerate depreciation to maximize tax savings
Total Accelerated Depreciation:
$1,387,452
Additional Cashflow(Year 1):
$485,608
Asset Classification Results:
MACRS Assets Life | Cost Segregation Allocation | Original Allocation | After Cost Segregation |
5 | 23% | - | $938,506 |
7 | - | - | - |
15 | 11% | - | $448,946 |
39 | 66% | $4,081,330 | $2,693,878 |
5-Year Assets (23% of Total)
Amount Allocated: $938,506
Description: These qualify for accelerated 5-year depreciation and include specialized equipment, refrigeration systems, dedicated electrical installations, and select interior finishes.
Depreciation Rate: 5-year schedule, with potential for 100% bonus depreciation in Year 1.
15-Year Assets (11% of Total)
Amount Allocated: $448,946
Description: Land improvements such as parking lots, landscaping, fencing, and exterior lighting.
Depreciation Rate: Accelerated 15-year schedule with eligibility for bonus depreciation.
39-Year Assets (66% of Total)
Amount Allocated: $2,693,878
Description: The core building structure, including the foundation, walls, roof, and standard mechanical systems.
Depreciation Rate: Standard 39-year schedule.
Federal Tax Savings: Assuming a 35% tax rate, the $1,387,452 in accelerated depreciation could yield approximately $485,608 in tax savings for Year 1 alone.
Cash Flow Benefit: Substantial increase in cash flow from the reduced tax liability, enabling reinvestment opportunities for the owner.
Summary
Through the strategic implementation of cost segregation, we were able to reclassify 34% of this fast food restaurant's $4,081,330 basis into shorter recovery periods. This frontloaded over $1.3 million in depreciation deductions, delivering significant tax savings and cash flow improvements in the critical early years of ownership.
Our team's expertise in engineering-based cost segregation studies ensures commercial real estate investors like yourself can maximize the tax advantages of your properties. By working with United Tax Advisors, you can be confident that every eligible asset is properly identified and classified according to IRS guidelines - minimizing your tax burden and positioning your business for long-term growth.