Car Dealership Saves Nearly $700,000 in Taxes through Cost Segregation
After a car dealership underwent a major renovation with costs of the improvements totaling approximately $4.6 million, they were seeking ways to offset their expenses by reducing their tax burden. With extensive experience helping commercial building owners capture all of the tax savings opportunities available to them, the team at CRG reviewed the car dealership’s project records and determined that they would be eligible for a Cost Segregation study. The result of the study was approximately $682,000 in tax savings.
Cost Segregation for Commercial Buildings
Cost Segregation is an IRS-approved federal tax deferral strategy that accelerates commercial building depreciation by identifying and reclassifying certain assets from real property to tangible personal property. Typically, real property is depreciated over a period of 39 years, while personal property is depreciated over 5, 7, or 15 years. Therefore, personal property assets yield more substantial and immediate depreciation deductions for the building owner.
Cost Segregation studies examine the assets within a building to identify those that could be reclassified as personal property. These assets may include electrical wiring, wall and floor coverings, plumbing fixtures, and more. By declaring these items personal rather than real property, the building owner can claim accelerated deductions due to the shorter depreciation lives.
Any commercial building—including offices, retail centers, car dealerships, hotels, industrial facilities, and many others—that was placed into service after December 31, 1986 may be eligible for a Cost Segregation study. The studies may be performed at any time after the building has been purchased, built, or remodeled, although the optimal time is within the first year after the building has been placed into service in order to begin maximizing depreciation deductions as soon as possible. A sound Cost Segregation study is backed by engineering principles and performed by a qualified third party, such as CRG.
After completing the Cost Segregation study on the car dealership, our team determined that 16% of the building’s short-lived assets could be reclassified as personal property. As a result, the dealership’s owners saved approximately $682,000 in taxes.
Commercial building owners, have you considered a Cost Segregation study? At CRG, we routinely help our clients boost cash flow and claim six- or seven-figure tax savings through Cost Segregation and other strategies. Contact us today to schedule a consultation!