Restaurant | National Asset Partners

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Restaurant | National Asset Partners

Tax Benefits Summary

Cost Basis: $2,000,000

Cost Reallocated: $1,053,010

Reallocation Percent: 52.7%

1st Yr. Deferred Tax: $115,960

Total Deferred Tax: $167,174

Project Overview

The National Asset Partners team of engineers was engaged by the owners of a franchise restaurant in the mid-south to conduct an Engineering- based Cost Segregation Study for a recently purchased single building located in a popular suburban retail location. The Study objective was to identity property components that could be reclassified to shorter recovery periods to accelerate building depreciation and defer income taxes.

Property Profile

The property is a single story building containing approximately 7,300 square feet. The building exterior walls are concrete block then finished with brick veneer. The windows are insulated fixed glass in 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 year round heating, ventilating, and air-conditioning system provided by gas & electric roof top units. The kitchen equipment has 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. The property has a cost basis of $2,000,000 and was acquired and placed in service in 2004.

Engineering Process

Our construction engineers performed a complete analysis of all available construction drawings and specifications, contractor payment applications, invoices, and other supporting documentation. We prepared a detailed analysis of all accumulated data on a property unit basis for cost allocation purposes under the provisions of the Internal Revenue Code. We then performed an onsite inspection to verify, photograph, and document the property. Finally, our internal audit team of senior construction engineers and tax specialists reviewed and certified its completeness and accuracy.

For more information please visit us at: http://nationalassetpartners.com

Office Building | National Asset Partners

Quoted from http://nationalassetpartners.com/index.php/case-studies/office-building:

Office Building | National Asset Partners

Tax Benefits Summary

Cost Basis: $10,634,585

Cost Reallocated: $1,394,418

Reallocation Percent: 13.1%

1st Yr. Deferred Tax: $277,692

Total Deferred Tax: $365,223

 

Project Overview

Owners of a real estate construction company engaged the National Asset Partners team of engineers to conduct an Engineering- based Cost Segregation Study for a newly constructed multi-tenant office building located on the southern east coast. The Study objective was to identity property components that could be reclassified to shorter recovery periods to accelerate building depreciation and defer income taxes.

Property Profile

This new 5-story office building consists of approximately 7,500 square feet of corridor and common area and approximately 100,700 square feet of lease able tenant space. General construction consists of a four inch thick concrete slab on grade reinforced with welded wire fabric over four inches of crushed stone on top of a vapor barrier. The steel framed structure is enclosed with brick veneer and insulated fixed glass in aluminum frames. Typical interior finishes include drywall over metal stud partitions finished with paint and hollow metal, and wood doors with frames and hardware. Floors two through five include two elevators, restrooms, two sets of stairs, an electrical room, a HVAC room, a telephone service room, and a janitor's closet. The first floor, in addition to the typical floor design of floors two through five, includes a mailroom and an elevator equipment room. Land improvements for this site include retaining wall, asphalt paving, concrete curbing, brick pavers and concrete sidewalks, underground utility and storm drainage, site lighting, general landscaping and irrigation system. The property has a cost basis of $10,634,585 and was acquired and placed in service in 2002.

Engineering Process

Our construction engineers performed a complete analysis of all available construction drawings and specifications, contractor payment applications, invoices, and other supporting documentation. We prepared a detailed analysis of all accumulated data on a property unit basis for cost allocation purposes under the provisions of the Internal Revenue Code. We then performed an onsite inspection to verify, photograph, and document the property. Finally, our internal audit team of senior construction engineers and tax specialists reviewed and certified its completeness and accuracy.

For more information please visit us at: http://nationalassetpartners.com

Emergency Economic Stabilization Act of 2008 Law & Analysis, 310, 15 Year MACRS Recovery Period for Restaurant Improvements and Buildings | National Asset Partners

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Emergency Economic Stabilization Act of 2008 Law & Analysis, 310, 15 Year MACRS Recovery Period for Restaurant Improvements and Buildings | National Asset Partners

Summary:

The 15-year recovery period for improvements to a restaurant building is extended to apply to improvements placed in service in 2008 and 2009. A 15-year recovery period now applies to restaurant buildings placed in service in 2009.

Background:

The American Jobs Creation Act of 2004 (P.L. 108-357) created a new category of 15-year property under the Modified Adjusted Cost Recovery System (MACRS) called "qualified restaurant property." This category applies to property placed in service after October 22, 2004 and before January 1, 2008 (Code Sec. 168(e)(3)(E)(v)). The straight-line method applies to such property (Code Sec. 168(b)(3)(H)). If the MACRS alternative depreciation system (ADS) is elected or otherwise applies, the recovery period is 39 years and the straight-line method applies (Code Sec. 168(g)(3)(B)). Whether or not ADS is elected, the applicable convention is the half-year convention, unless the mid-quarter convention applies.

Qualified restaurant property is any section 1250 property which is an improvement to a building if the improvement is placed in service more than three years after the date the building was first placed in service and more than 50 percent of the building's square footage is devoted to preparation of and seating for on-premises consumption of prepared meals (Code Sec. 168(e)(7)). The three-year period is measured from the date that the building was originally placed in service, whether or not it was originally placed in service by the taxpayer. For example, improvements to a restaurant building that is at least three years old at the time the taxpayer buys the building may qualify.

Prior to enactment of this provision, a section 1250 improvement to a restaurant building would be depreciated over 39 years beginning in the month that it was placed in service using the mid-month convention. An improvement to a restaurant that is section 1245 property (personal property) may be depreciated as MACRS five-year property (Asset Class 57.0) under the MACRS cost segregation rules.

The provision only applies to improvements to a restaurant building. Improvements that are not part of or attached to the restaurant building, for example, a detached sign supported on a concrete foundation, sidewalk, or depreciable landscaping, would generally constitute separately depreciable land improvements which also have a 15-year recovery period but may be depreciated using the 150-percent declining balance method. Other unattached improvements may qualify for a shorter recovery period if not considered a land improvement

NEW LAW EXPLAINED:

15-year recovery period for restaurant improvements extended provided for restaurant buildings.—The 15-year MACRS recovery period for qualified restaurant property that is an improvement to a restaurant is extended to apply to property placed in service before January 1, 2010 (Code Sec. 168(e)(3)(E)(v), as amended by Emergency Economic Stabilization Act of 2008 (P.L. 110-343)).

Planning Note:

The 15-year recovery period is not elective. However, a taxpayer could effectively elect out by making an ADS election and depreciating the property using the straight-line method. An ADS election, however, would apply to all MACRS 15-year property placed in service by the taxpayer during the tax year, not just qualified leasehold improvement property.Comment
Fiscal-year taxpayers that filed a return using a 39-year recovery period for qualified restaurant property placed in service during 2008 should file an amended return to correct the depreciation period. Note, however, the IRS also allows a taxpayer that has filed only one incorrect return to file Form 3115 and claim a section 481 adjustment. See Section 4 of Rev. Proc. 2007-16, I.R.B. 2004-3.

Practical Analysis:

Vincent O'Brien, President of Vincent J. O'Brien, CPA, PC, Lynbrook, New York, notes that restaurant improvements are ineligible for bonus depreciation under the Economic Stimulus Act of 2008 (P.L. 110-185). However, such improvements are eligible for the shorter 15-year recovery period.

The new law also expands the definition of qualified restaurant property to include a building placed in service after December 31, 2008, and before January 1, 2010, if more than 50 percent of the building's square footage is devoted to preparation of, and seating for on-premises consumption of, prepared meals (Code Sec. 168(e)(7)(A), as amended by the Emergency Economic Act of 2008). Such a building is depreciated similarly to an improvement to a restaurant building. Thus, the building is depreciated over 15 years (39 years under the MACRS alternative depreciation system (ADS)) using the straight-line method and the half-year or mid-quarter convention.

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Cost Segregation Applied

Quoted from http://www.journalofaccountancy.com/Issues/2004/Aug/CostSegregationApplied.htm:

Cost Segregation Applied

OVERLOOKED OPPORTUNITY
Accounting professionals must be able to suggest and help implement cost segregation for their clients or employers so they can achieve maximum tax savings. In the past when taxpayers purchased real estate, they traditionally allocated 20% of the purchase price to land and 80% to buildings. While the IRS rarely questioned this simplistic approach, purchasers did themselves a financial disservice: They forfeited opportunities to achieve a better tax result.

Although the cost segregation technique always was available to real estate purchasers, it often was overlooked as a tax-savings tool. Recently, however, buyers have begun to recognize that despite some drawbacks, cost segregation can dramatically increase tax savings. They are, therefore, taking advantage of this opportunity, challenging the “business as usual” mantra.

For more information please visit us at:

http://nationalassetpartners.com

When is the best time to do a cost segregation study? | National Asset Partners

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When is the best time to do a cost segregation study? | National Asset Partners

When should a cost segregation study be conducted?

The ideal time for a cost segregation study can vary depending on a client's tax situation. At National Asset Partners, our team of engineers and tax experts work together with clients and their accountants to recommend the best tax planning solution to fit their needs.

A free preliminary analysis can help determine the right timing and strategy for any investor. Post-purchase, remodel, or construction: "Look-back" Studies: A study can be completed anytime after the purchase, remodel, or construction of a property. In fact, current Internal Revenue Service procedures make it easy to go back and claim missed depreciation on assets acquired as far back as 1987 without amending prior tax returns.

Year Placed in Service: The optimum time for a study for new owners, is during the year a building is constructed, purchased, or remodeled. This allows an owner to immediately optimize tax savings and accurately classify assets before the building even begins to depreciate.

Pre-construction: For investors who are in the planning phases of construction or remodeling, the best time to consider a cost segregation study is before the infrastructure of the building is set. National Asset Partners Pre-Construction Consulting allows the project's accountant and construction contractor to accurately track items that qualify for accelerated depreciation and ultimately saves time and money.

Who can benefit from a cost segregation study? | National Asset Partners

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Who can benefit from a cost segregation study? | National Asset Partners

Commercial real estate owners and tenants who make qualified leasehold improvements should take full advantage of a cost segregation study. Cost segregation studies are intended to reduce present tax liability. What commercial property owners do not realize is that; Cost segregation studies can save owners thousands of dollars on a quarterly or annual basis by converting ordinary income activities to investment activities. This accepted tax planning strategy benefits property owners by deferring tax, accelerating depreciation deductions and improving cash flow.

Cost segregation studies can be applied to new construction properties, existing properties, acquisitions, redevelopment properties, and leasehold improvements. You may qualify for a cost segregation study if you constructed, acquired, remodeled or made leasehold improvements to an existing property after December 31, 1986. Also, you could have acquired your building or facility that was constructed prior to 1986, but was purchased in a taxable transaction after 1986.  Property owners that have constructed or purchased a facility after December 31, 1986 with a basis of one million and will retain the property for a minimum of 2 – 3 years can also benefit from a cost segregation study.  Many types of properties qualify for a cost segregation study.  Examples of properties that may qualify are office buildings, manufacturing facilities, banks, casinos, golf courses, apartment complexes, restaurants, auto dealerships, strip malls and hotels.

The Jobs and Growth Tax Act of 2003 establishes a new 50% bonus depreciation provision for qualifying property acquired after May 5, 2003. The Act also extends the availability of the 30% bonus depreciation deduction for property acquired through the end of 2004.  An extended placed-in-service date prior to 2006 applies for certain longer-lived property and transportation property.

Who can benefit from a cost segregation study?

Quoted from www.nationalassetpartners.com

Commercial real estate owners and tenants who make qualified leasehold improvements should take full advantage of a cost segregation study. Cost segregation studies are intended to reduce present tax liability. What commercial property owners do not realize is that; Cost segregation studies can save owners thousands of dollars on a quarterly or annual basis by converting ordinary income activities to investment activities. This accepted tax planning strategy benefits property owners by deferring tax, accelerating depreciation deductions and improving cash flow.

Cost segregation studies can be applied to new construction properties, existing properties, acquisitions, redevelopment properties, and leasehold improvements. You may qualify for a cost segregation study if you constructed, acquired, remodeled or made leasehold improvements to an existing property after December 31, 1986. Also, you could have acquired your building or facility that was constructed prior to 1986, but was purchased in a taxable transaction after 1986. Property owners that have constructed or purchased a facility after December 31, 1986 with a basis of one million and will retain the property for a minimum of 2 – 3 years can also benefit from a cost segregation study. Many types of properties qualify for a cost segregation study. Examples of properties that may qualify are office buildings, manufacturing facilities, banks, casinos, golf courses, apartment complexes, restaurants, auto dealerships, strip malls and hotels.

The Jobs and Growth Tax Act of 2003 establishes a new 50% bonus depreciation provision for qualifying property acquired after May 5, 2003. The Act also extends the availability of the 30% bonus depreciation deduction for property acquired through the end of 2004. An extended placed-in-service date prior to 2006 applies for certain longer-lived property and transportation property.