Restaurant Cost Segregation Study
In this case study, we break down the tax benefits achieved through a detailed cost segregation study on a newly acquired restaurant property. By reallocating certain assets into shorter depreciation categories, restaurant owners can unlock significant tax savings and boost cash flow—vital for reinvestment and business growth. Explore how reclassification strategies led to substantial year-one savings, and see the power of proactive tax planning in action for restaurant investments.
cafe & restaurant
Total Purchase Price: $4,000,000
In Service Date: January 1, 2022
Goal: Accelerate depreciation to maximize tax savings
Total Accelerated Depreciation:
$1,160,000
Additional Cashflow(Year 1):
$429,200
Asset Classification Results:
MACRS Assets Life | Cost Segregation Allocation | Original Allocation | After Cost Segregation |
5 | 21% | - | $840,000 |
7 | - | - | - |
15 | 8% | - | $320,000 |
39 | 71% | $4,000,000 | $2,840,000 |
5-Year Assets (21% of Total)
Amount Allocated: $840,000
Description: This category covers assets like kitchen equipment, furnishings, and select fixtures essential to restaurant operations, eligible for accelerated 5-year depreciation and bonus deductions.
Depreciation Rate: Accelerated 5-year schedule, with potential for bonus depreciation.
Bonus Depreciation: Assuming bonus depreciation is available, the owner could deduct 100% of these costs in Year 1.
15-Year Assets (8% of Total)
Amount Allocated: $320,000
Description: These assets consist of land improvements such as patios, signage, landscaping, and parking, also eligible for accelerated depreciation.
Depreciation Rate: Accelerated 15-year schedule with potential eligibility for bonus depreciation.
Bonus Depreciation: The owner could take a 100% deduction on these assets in the first year if bonus depreciation applies.
Remaining 39-Year Assets (71% of Total)
Amount Allocated: $2,840,000
Description: The bulk of the property, primarily structural components and core systems like HVAC, walls, and roofing, depreciated on a standard schedule.
Depreciation Rate: Standard 39-year schedule without accelerated benefits.
Federal Tax Savings: At a 37% tax rate, the $1,160,000 in accelerated depreciation could yield approximately $429,200 in tax savings for Year 1 alone.
Cash Flow Benefit: Increased cash flow resulting from reduced tax liability, allowing reinvestment opportunities for the owner.
Summary
This restaurant case study highlights the impact of cost segregation in enhancing cash flow and reducing tax burdens for property owners in the food service industry. Through a detailed analysis, we reallocated significant portions of the property’s assets into shorter depreciation categories, allowing the owner to claim accelerated deductions in the initial years of ownership. The result? Immediate tax savings and improved liquidity that supports reinvestment into the business. By leveraging these strategies, restaurant owner was able to accelerate depreciation on 29% of the property’s value, improving cash flow and reducing tax burdens. This strategic approach offers substantial financial benefits for short-term rental investments, maximizing tax savings and strengthening cash flow for reinvestment.
Our expert team streamlines the cost segregation process, helping you maximize depreciation benefits and keep more cash in your business. Don’t leave potential savings behind—let us handle the complexities while you focus on growth.
Connect with United Tax Advisors today to boost your cash flow and take your investments further!