Case Study — Fine Dining Restaurant

A Fine Dining Restaurant will have many of the same components as the casual dining and QSR that are qualified 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.  Similar to a casual dining restaurant, the fine dining restaurant will likely have a bar and additional decorative millwork and lighting. The decorative millwork and lighting may be even more extensive, causing the percentage of personal property to be even greater than that in a QSR or casual dining restaurant. The land improvements as a percentage of total cost may be smaller than that of a casual dining restaurant since the fine dining restaurant is likely to have fewer tables per square foot of space, leading to less required space in the parking lot.
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.

Fine Dining Example:

• Capitalized Cost of Property (Excluding land): $1,645,000
• 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 2005, the Fine Dining Restaurant had a total  cost of $1,645,000. Through cost segregation analysis, the owner was able to re-classify 22% of the total costs to either 5 or 7 year property and 14% of the total costs to 15 year property. This resulted in a Net Present Value After Tax Benefit of nearly $119,000. The additional depreciation in the first year of the study was approximately $358,000.

The tax savings in the first year assuming a tax rate of 39% was over $139,000.

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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.