Cost segregation studies have been around for many years, yet many in the restaurant industry are unfamiliar. Cost segregation studies allow taxpayers with significant capital expenditures toward their facilities to segregate their costs into different asset classes. Depending on the asset class, taxpayers can depreciate many items using shorter depreciation lives that are eligible for bonus depreciation, creating significant tax savings for the taxpayer.
Why are cost segregation studies effective in the restaurant industry?
The restaurant industry constantly adds new facilities or embarks on capital-intensive renovation projects. Cost segregation studies provide a perfect solution to finding upfront tax savings in order to finance these projects. For example, for a typical new building within the restaurant industry, a cost segregation study will usually result in allocating between 30-40% to bonus depreciation-eligible asset classes (asset classes with a 5-, 7-, or 15-year life). For a $1 million building purchase, that is approximately $300,000-$400,000 of accelerated deductions compared to if a cost segregation study is not performed.
How does a cost segregation study interplay with bonus depreciation?
Assets that are assigned to bonus depreciation asset classes are eligible to take bonus depreciation. This is significant in today’s landscape, where taxpayers can utilize 80% bonus depreciation for 2023 and 60% bonus depreciation for 2024. For the $1 million building purchase example above, the year one tax savings for a 2023 building purchase equates to over $100,000 in most situations.
How long does a study take?
Cost segregation studies typically take six weeks to complete. Studies require a qualified engineer to perform a site visit in order to categorize and document different asset classes. If your restaurant is trying to get your tax returns filed by April 15th and implement a cost segregation study into the tax filing, we recommend getting started immediately!
Is it ever too late for a cost segregation study?
The short answer is no. Whether you bought a new building in 2023 or did a remodel project five years ago, cost segregation studies allow you to change your accounting method and catch up on any accelerated depreciation that may have been missed in previous years, all without having to amend prior year tax returns.
How Can GBQ Help?
GBQ will connect you and your restaurant with a cost segregation expert who can help. Please contact Jeff Waldeck directly with any questions.
Jeff Waldeck – Professional Biography
