Article

Take Advantage of the Many Benefits of Cost Segregation

By utilizing an often-overlooked tax tool known as cost segregation, those in the food and beverage industry could realize significant tax savings and immediate improved cash flow in the earlier years of restaurant operation. Continue reading to see the many advantages to using cost segregation and how it can help you and your business.

Learn More
< Back to Insights
Insights  <  Take Advantage of the Many Benefits of Cost Segregation

By utilizing an often-overlooked tax tool known as cost segregation, those in the food and beverage industry could realize significant tax savings and immediate improved cash flow in the earlier years of restaurant operation. Continue reading to see the many advantages to using cost segregation and how it can help you and your business.

By utilizing an often-overlooked tax tool known as cost segregation, those in the food and beverage industry could realize significant tax savings and immediate improved cash flow in the earlier years of restaurant operation—when the need to financially thrive is vital.

Cost segregation looks at non-structural elements of a building that houses a food or beverage industry-related business and assigns shorter life spans to those components, thereby depreciating them at an accelerated rate. While the standard class life for most non-residential buildings is 39 years, cost segregation can be utilized to accelerate depreciation to 5, 7 or 15 years on qualifying elements, significantly increasing a business’s tax deductions. This tax strategy makes particular sense for businesses located in recently constructed buildings, acquired properties and properties with significant renovations—and can result in a reduction in current tax liability, tax deferral, increased deductions and decreased tax payments.

Components in the food and beverage industry that typically qualify for accelerated write-off status include dedicated electrical and plumbing work; beverage equipment; canopies and awnings; drive-thru equipment; bio-protection devices; food storage and preparation apparatus; decorative millwork and light fixtures; point of sale systems; signage; and kitchen fire suppression. Also included on the list of non-structural items qualifying for accelerated depreciation are grease traps and tanks; walk-in coolers and freezers; cabinetry; counters; and some floor and wall coverings.

Storm water systems, parking lot lighting, paving, curbs, sidewalks, dumpster enclosures and irrigation systems are considered qualifying land improvement elements and may meet the requirements for accelerated depreciation.

All varieties of food and beverage industry establishments may qualify for cost segregation, and the space in which they operate may also be applied to the cost segregation efforts— even if they don’t own the building. Also eligible are free-standing buildings and build-outs that are part of a multi-tenant space, such as a mall or retail strip center.

It is important to note that—with present tax laws—cost segregation applies to real estate placed in service in 1987 or later, allowing a business owner to recapture depreciation benefits left on the table in previous years. In fact, tax laws allow an owner to deduct depreciation benefits that were overlooked in previous years without amending prior tax returns.

In order to determine the benefits an establishment can incur from this tax strategy, a cost segregation analysis is necessary. At blumshapiro, this engineering-based study begins by first gathering the information necessary to estimate potential tax benefits and then working with a licensed engineer to acquire estimates and supporting documentation, including photographs of property components that are eligible for accelerated depreciation.

Ultimately, the goal of cost segregation analysis is to identify the greatest number of eligible tax deductions while adhering to limits set by the Internal Revenue Service.

Continue the Conversation with Our Team
Get in touch with us.

Contact Us