Auto Dealership Cost Segregation Case Study

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    • Jan 24, 2025
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Maximize Your Auto Dealership’s Tax Strategy

What is Cost Segregation
Cost segregation is an effective tax planning strategy that helps businesses and individuals involved in constructing, purchasing, expanding, or renovating real estate reduce their tax liabilities by accelerating depreciation deductions, which allows for the deferral of both federal and state income taxes.

Auto Dealership
Auto dealerships, with their specialized requirements—such as decorative features, high-power lighting, signage, and often an auto repair shop—are particularly well-suited for cost segregation. These unique components can be depreciated over a shorter period, allowing for greater tax savings and maximizing the financial benefits of the property. This approach optimizes the tax strategy for auto dealership owners, improving both short-term cash flow and long-term investment returns. 

Practical Example

This case study highlights the benefits of accelerated depreciation, demonstrating how similar advantages can be realized for auto dealerships with specialized infrastructure and customer-focused amenities. By optimizing the depreciation of assets like showrooms, service areas, and equipment for tax efficiency, dealership owners can reduce taxable income, improve cash flow, and enhance overall financial performance.

Building information

○ Building Type 🡪 Auto Dealership
○ Property Type: 🡪 Commercial
○ Building Size: 🡪 6,969 SF
○ Study Scope: 🡪 Acquisition
○ Condition: 🡪 Good
○ Filling Year: 🡪 2023
○ Date Placed in Service: 🡪 2021
○ Purchase Price less Land or Total Construction Cost: 🡪 $4,500,000
○ Tax Rate: 🡪 30%
○ Return on Investment Factor: 🡪 8%

Summary of Benefits

○ 25% Additional Tax Deductions in First Year: 🡪 $1,953,488

○ RNPV Over Remaining Life of Property: 🡪 $500,646

○ Net Present Value (NPV) Over 10 Years: 🡪 $545,217

Building Allocation After Study

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    5 Year Property

    Depreciable Basis: $255,077 at 6%

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    7 Year Property

    Depreciable Basis: $208,700 at 5%

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    15 Year Property

    Depreciable Basis: $664,178 at 15%

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    39 Year Property

    Depreciable Basis: $3,373,045 at 75%

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    Total

    Depreciable Basis: $4,500,000 at 100%

Sales Tax Exemptions

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