Many automobile dealerships implement significant renovations as the industry morphs due to technology changes and as manufacturers rebrand. The goal of the renovations are, of course, to improve top line performance (sales).
Top line goals can effectively be achieved more quickly by capitalizing on the tax benefits associated with the renovations; for instance, it’s not uncommon for $1MM in renovations to conservatively equate to a $60,000 tax related improvement in the bottom line. Given a 10% profit margin, that equates to a $600,000 increase in top line results.
What Tax Benefits?
Tax benefits associated with construction costs can be procured through an Engineering Based Cost Segregation Study. This Study applies tax compliant depreciation time-lines to certain non-structural components.
Furthermore, the tax benefits of properly depreciating current renovations can apply to the entire existing facility, including past renovations.
Cost segregation analysis is a logical tax strategy dating back to 1959 when the Tax Court first allowed component-based depreciation of buildings (though greatly clarified over the past decade with the IRS’s Audit And Technique Guidelines). Even properties purchased years ago can capture benefit with a very attractive cost-to-benefit ratio for performing an Engineering Based Cost Segregation Study. Any auto dealership whether purchased, constructed or renovated for costs in excess of $500,000 should consider this service.
