Industry Spotlight: Cost Segregation for Auto Dealerships and Service Centers

Happy businessman poses in car dealership. Customer in new vehicle showroom, male person buying automobile, auto dealer business

Auto businesses such as dealerships and maintenance centers are unique properties with high overhead costs. Cost Segregation is a cost-effective strategy for maximizing these businesses’ tax benefits.

A Cost Segregation Study offers a great potential for cost savings for the auto industry, and may be one of the most valuable tax planning tools available to these niche businesses. These studies have great potential for improving your bottom line by relieving your overall tax burden.

Though many auto dealerships and service centers are leased properties, a Cost Segregation Study (CSS) can still benefit the lessee if he or she has invested in improvements to the property. These costs can be factored into the CSS and reallocated to accelerate the depreciation of these building elements.

What is a Cost Segregation Study?

Cost Segregation is a tax strategy that reclassifies a property from real property to personal property, therefore accelerating the depreciation of certain portions of your auto dealership from 39 or 27.5 years down to 5, 7 and 15 years. This increases your near term cash flow by reducing your overall tax liability, especially in the short term.

To perform a cost segregation study, you must hire a specialty engineer or national tax experts with engineers on staff to thoroughly survey your property, its building components, and blueprints. After this process is completed, your hired tax experts should walk you through the report and present the most lucrative options for you going forward.

What Auto Facility Features Can Qualify for Cost Segregation?

Auto facilities require high-grade professional equipment, large signage and expansive parking lots or storage space for vehicles. All of these building elements can be included in a Cost Segregation Study. Other auto industry building features that can qualify the business for a CSS are as follows:

  • Landscaping and irrigation systems
  • Indoor and outdoor signage
  • HVAC or air filtration systems
  • Oil, gas, fluid and waste piping
  • Compressed air systems
  • Car lift systems

A Cost Segregation Study might not always be the best fit for a company, but auto dealerships and car maintenance facilities are businesses with a high potential for cash savings using this little-known tax strategy. This service can be especially beneficial if the service center or dealership has recently undergone construction. The first step to starting the CSS process is to hire national tax experts with a thorough understanding of your business and how cost segregation could best benefit you.

National Tax Group not only has a team of tax experts available, but also engineering staff that can perform a CSS of your property at your earliest convenience. Call us at (561) 257-3436 to schedule a free consultation today.

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