Case Study — Casual Dining Restaurant
A Casual Dining Restaurant will be similar to a QSR in many of the structural components and qualified property for accelerated depreciation. Qualified property for accelerated depreciation includes, but is not limited to: dedicated plumbing, electrical and gas piping to kitchen equipment, equipment hood fire detection/suppression systems, grease traps/tanks, walk-in coolers/freezers and related dedicated electrical and plumbing, cabinetry, counters, decorative millwork, decorative lighting and various land improvements. Some examples of land improvements include certain excavation work, storm water systems, parking lot lighting and related dedicated electrical, paving, curbs, sidewalks, dumpster enclosures, landscaping and irrigation systems. In comparison to a QSR, a casual dining restaurant will normally have a larger parking lot to accommodate more customers occupying the restaurant at one time. A larger parking lot means more qualified land improvements. Although there are more qualified land improvements, the percentage of land improvements as a percentage of the total cost is lower because the total cost of the property is often more than the QSR. The casual dining restaurant also may have more decorative woodwork and lighting. In addition, a casual dining restaurant quite often will have a bar area which would add additional decorative woodwork, counters, cabinetry and dedicated plumbing and electrical.
Please note that qualified property, land improvements and personal property are terms used to describe costs in the restaurant real estate that can be written off more quickly for tax purposes.
Casual Dining Example:
- Cost of Property (Excluding land): $1,420,000
- Constructed and placed in service in 2003
- Bonus Depreciation of 30% taken on land improvements and personal property
In this case study done for tax year 2006, the Casual Dining Restaurant had a total cost of $1,420,000, not including land. Through cost segregation analysis, the owner was able to re-classify 20% of the total costs to either 5 or 7 year property and 16% of the total costs to 15 year property. This resulted in a Net Present Value After Tax Benefit of over $100,000. The additional depreciation in the first year of the study was approximately $321,000.
The tax savings in the first year assuming a tax rate of 39% was over $125,000.
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*Net Present Value is a calculation that shows the combined benefits of a cost segregation study over the remaining tax life of the property. The combined benefits each year are adjusted back to today's dollars using a 7% discount factor. This allows our clients to compare the total benefits in today's dollars to the fee of our services.
