Cost segregation works pretty much on all commercial buildings. If the building cost is north of $175,000 or so, there are tax savings being left on the table if the owner does not segregate the building in to 5, 7, 15, and 39 year class lives which is what happens when you do an engineering-based cost segregation study.
What might one see for results in such a study for a Panera Bread commercial building? Well, the owner might save about $100,000 on his/her income taxes by doing a study. The cost of the study would be a small fraction of the overall savings.
Let’s say in this scenario we have the following:
Building Cost: $1,500,000
Increased Accumulated Depreciation: $310,000
Estimated Tax Savings @32% Federal Rate: $99,200
The building owner doesn’t have to write a check to the IRS for that $99,200. The money stays in his/her bank account and they can do with it as they see fit….remodel bathrooms, buy a new building, buy a new car, pay off debt, increase wages for employees, buy a short term rental, take some vacations….they money is there’s and remains with them. I don’t care how much money people have…they could have millions, but there hasn’t been a single person yet that I’ve come across who says they aren’t interested in keeping an extra $100,000. And it doesn’t have to be $100,000….we run scenarios for all kinds of property…let’s say you own a building that is only $300,000 but by doing an engineering-based cost segregation study, you might be able to save $15,000-$20,000 on your taxes. That’s real money and people would rather keep that money in their bank accounts rather than the IRS’s.
Note, the numbers above are estimated tax savings. Each study is different and we wouldn’t know the final results until the actual study is completed. A building owner’s tax situation and tax rate might be different. If they were in the 37% tax bracket their tax savings would be quite a bit higher. If they are in a lower bracket then the savings would be lower. As always, I can’t give tax advice. When considering cost segregation, get an estimate and then discuss it with your own tax professional to see if you can benefit from doing a study.