Cost Segregation benefits fast-food restaurant for local franchisee. A local Wendy’s franchisee recently contacted Segregation Holding Limited to provide a feasibility study on applying cost segregation to their fast-food restaurants.
Ultimately, Segregation Holding Limited was engaged by the owners of five Wendy’s restaurants to conduct a cost segregation study for each of their properties. The objective of the study was to identify qualifying assets that could be moved to shorter recovery periods in order to accelerate depreciation and defer taxes. An example of qualifying assets would include secondary/back-up electrical, lighting and plumbing systems, grease traps, cabinetry, finish carpentry and trim, exhaust fans, fire suppression systems, security systems, walk-in cooler/freezer, exterior lighting, landscaping, parking lot, curbs, sidewalks, fencing, site drainage, collection basin, trash collection area, and much more. These assets fall under IRC Sec. 1245 for tangible personal property or land improvements, and some under Sec. 1250 for specific land improvements.
Each restaurant consists of a single story quick serve restaurant with an average building footprint of approximately 3,060 square feet. Each restaurant contains a pre-fabricated walk-in cooler/freezer and four of the five contain an external bun freezer positioned on concrete pads. The combined cost basis for this portfolio is $2,400,821.
Cost segregation engineers examined all the design and construction documents, contractor payment requests and other related data to determine the cost basis for every component of each building. Next, the cost segregation engineer conducted on-site surveys to identify, measure, quantify, and photograph the existence of all assets eligible for accelerated depreciation. Finally, our cost segregation team which includes the on-site engineer, senior engineer and cost segregation tax specialist, reviewed each cost segregation report and certified each for completeness and accuracy in order to maximize the client’s return on investment.
The pre-engagement estimate provided to the client showed a potential short-life asset reallocation of $1,008,000 or 42% to shorter depreciable lives. The projected cost segregation tax benefit was $244,565 in NPV savings over the next 10 years with $203,010 in income tax savings available for the current tax year.
The cost segregation study reallocated $1,264,622 or 52.7% of the assets to shorter recovery periods of 5- and 15-years. As a result, the property owner’s income tax savings (based on 36% federal income tax bracket) came to be $306,770 in NPV over the next 10 years with $322,051 in income tax savings available for the current tax year.
Cost segregation delivers results every time it’s applied.
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