52% of Assets Reallocated to a Shorter Recovery Period

Fast Food Restaurant in Ohio

Meridian was engaged by the owners of a franchise restaurant in the Midwest to conduct an engineering-based Cost Segregation Study for a recently purchased single story building located in a popular suburban retail location. The objective was to identify property components which could be reclassified to shorter recovery periods to accelerate building depreciation and defer income taxes. The property is a single story building and approximately 7,300 square feet. The property has a cost basis of $3,000,000 and was acquired and placed into service in 2019.

Property Specifications

The building exterior walls are concrete block completed with brick veneer. The windows are insulated fixed glass within aluminum frames. Interior finishes include drywall over metal stud partitions finished with paint, vinyl wall covering, marlite and stainless steel wall protection, and hollow metal and wood doors with frames and hardware. There is a constant heating, ventilation, and air-conditioning system provided by gas and electric rooftop units. The kitchen equipment comprises exhaust hoods, fans, and a make-up air system. Electrical systems include power distribution equipment, fluorescent and incandescent light fixtures, receptacles, switches, conduit, and wire. There are multiple kitchen equipment electrical hook-ups. Land improvements include asphalt paving, concrete sidewalks, concrete curbing, concrete dumpster pad, dumpster enclosures, and landscaping with irrigation.

Methodology

Our construction engineers conducted a comprehensive inspection and itemized the improvements located on this acquired property. We reviewed all available construction documentation, and inclusive of inspection information we isolated the various components qualifying for shorter cost recovery period depreciation under the provisions of the Internal Revenue Code and current tax law.
Consequently, the client was able to reallocate $1.56 million or 52% of the assets to a shorter recovery. The client has since engaged Meridian to review their entire nationwide portfolio as the incremental value provided by Meridian’s expert guidance facilitated a substantial impact to their overall tax planning.