Recently I received a call from someone inquiring as to whether or not Starbucks were good for cost segregation. Yes, they are excellent for cost segregation because they typically have large parking lots (15 year land improvements) and excellent interior finishing which a lot of that ends up being identified as 5 year class life property.
Here’s a good example. Let’s say this Starbucks was purchased for $2.5 million and the land was worth $500,000. Since the land cannot be depreciated, that must be deducted so we come up with a basis of $2,000,000 for the building. Every building is different but for the sake of understanding how cost segregation can help an owner of a Starbucks building let’s look at how this breaks down.
A cost segregation study is going to identify and reclassify all the building components as well as segregate the land improvements. So with this property, let’s stay 17% was identified at 5 year class life property. That would be $340,000. And for the land improvements, let’s say those come in at 20% which would be $400,000. So on a $2 million building, this owner could accelerated $740,000 or 37% of the building cost or basis. Depending upon the year in which this went into service, it could be taken as 100% bonus depreciation (Sept. 27, 2017 – Dec. 31, 2022). If the building went into service in 2023 then it would qualify for 80% bonus depreciation. (Bonus depreciation drops 20% each year until 2027 when it goes to zero or just regular accelerated depreciation).
If the owner is paying federal taxes at say a 35% rate, that would be a tax savings of almost $260,000 in income taxes. These studies would typically cost less than $6,000 which is an expense…so it’s a net of $3,900. That’s an ROI of about 66:1.
If you’d like to have us evaluate your property for cost segregation, please feel free to reach out and I’d be happy to discuss.
