Restaurant & Bar Saves $178,000 Through Cost Segregation

The restaurant industry is fiercely competitive, and the owners of restaurants, bars, and other dining establishments are often seeking ways to minimize expenses. For those that own their buildings, a federal tax deferral strategy called Cost Segregation can offer a powerful way to boost their bottom lines through tax savings.

At CRG, we frequently work with the owners of restaurants and various other types of commercial buildings to help them maximize the tax savings available to them. Our recent clients have included the owners of a restaurant/bar, who purchased the property for $782,000. After reviewing the owners’ records, we determined that the building was well-suited for a Cost Segregation study. Through the study, we were able to reclassify 23% of the building’s real property assets as personal property, thereby yielding approximately $178,000 in tax savings for the owners.

What is Cost Segregation?

 The IRS-approved strategy of Cost Segregation accelerates commercial building depreciation by identifying and reclassifying certain assets within the building from real property to tangible personal property. Typically, real property is depreciated over 39 years, while personal property is depreciated over 5, 7, or 15 years. This means that personal property assets yield more substantial and immediate depreciation deductions for the building owner—so by reclassifying the real property assets, owners can take advantage of the shorter depreciation lives and claim accelerated deductions.

Any commercial building—including offices, retail centers, hotels, industrial facilities, medical offices, 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. Newly purchased restaurants that have been in existence in the same building for three years may be eligible for Cost Segregation studies with a 15-year life, rather than 39 years.

At CRG, one of our specialties is performing Cost Segregation studies for commercial and multifamily residential buildings. With a combination of tax, engineering, and commercial real estate expertise, our team is uniquely suited to help building owners maximize tax savings while ensuring compliance with IRS regulations. Contact us today to schedule a complimentary consultation!