Case Study — Quick Service Restaurant
Although the concept of a Quick Service Restaurant (QSR), with its quick service and food preparation, may vary from a casual dining concept or fine dining restaurant, the overall structure of the building is very similar. 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.
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.
Quick Service Restaurant Example
- Cost of Property (Excluding land): $950,000
- 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 QSR had a total cost of $950,000, not including land. Through cost segregation analysis, the owner was able to re-classify 17% of the total costs to either 5 or 7 year property and 21% of the total costs to 15 year property. This resulted in a Net Present Value After Tax Benefit of over $71,000. The additional depreciation in the first year of the study was approximately $212,000.
The tax savings in the first year assuming a tax rate of 39% was over $82,000.
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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.
