Company Overview
A well-established auto dealership on the East Coast, has built its reputation on providing exceptional customer service and innovative automotive solutions. Recognizing the evolving market demands, the dealership embarked on a multi-phase renovation in 2024 to modernize facilities and enhance the customer experience. This first phase included significant additions and upgrades to their property, setting the stage for growth and sustainability.
Challenges and Opportunities
The renovation project was ambitious and multifaceted, involving the following key updates:
Additions:
A state-of-the-art service garage
A cutting-edge showroom
A free-standing mezzanine-level storage structure
Renovations:
Upgrades to the existing showroom, sales offices, and customer waiting areas
New Feature:
Installation of electric vehicle (EV) charging stations
The cost for these updates increased the property’s depreciable basis to $5,268,291. Working with Herbein’s tax team and Tax Credits and Incentives Team, the dealership sought to optimize tax incentives available. Herbein’s team suggested a comprehensive analysis to identify available federal and state incentives. Options included tax strategies like cost segregation to maximize their return on investment and position themselves for long-term success.
Herbein Approach
The Herbein team took a personalized, strategic approach to this project. Beyond a straightforward cost segregation study, Herbein identified opportunities across multiple tax-saving avenues. Their detailed process included the following solutions:
Cost Segregation Study
By breaking the property’s depreciable basis into shorter asset lives, Herbein accelerated depreciation to improve cash flow. The $5,268,291 basis was categorized as follows:
5-Year Personal Property: 8.2% ($432,000)
15-Year Land Improvements: 7.6% ($400,390)
15-Year Qualified Improvement Property (QIP): 8.6% ($453,073)
39-Year Real Property: 75.6% ($3,010,871)
Since these assets were placed in service in 2024, the 5- and 15-year assets (including QIP) qualified for 60% bonus depreciation, generating significant tax savings.
Partial Asset Disposition
Herbein conducted a detailed analysis to identify disposal values for assets replaced or demolished during the renovation. The IRS permits owners to write off the remaining depreciable basis of disposed assets. A detailed record of the assets is required, and a cost segregation study is an ideal way to generate that data.
The Herbein engineer compiled the following record of disposed assets:
(Click to Enlarge)
The $162,316 of disposed assets represents an additional estimated $60,000 in tax savings.
179D Deduction Study
The 179D Deduction is a federal incentive that rewards energy-efficient construction. Herbein discovered that the additions to the dealership incorporated multiple energy-saving features including:
LED interior lighting with occupancy sensors and bi-level switches
New insulated membrane roofing and insulated windows
Gas-fired condensing boiler, hot water supply pumps and radiant heating
Air Handling Units w/ gas furnaces, packaged rooftop units, and digital programmable thermostats
This incentive was calculated at $5.65 per square foot in 2024. With a total addition of 53,664 square feet, the dealership qualified for a deduction of $303,201.
EV Charging Station Credit
The dealership’s installation of EV charging stations allowed them to claim the Alternative Fuel Vehicle Refueling Property Credit. This federal incentive covers up to 30% of qualifying costs. Herbein helped Dealership ABC secure a credit of $27,293 based on their total charging station costs of $90,979.
Results
Herbein’s expertise and comprehensive approach unlocked significant financial benefits for the dealership, including:
Cost Segregation Study Savings: $270,589
179D Deduction Savings: $303,201
EV Charging Station Credit: $27,293
Partial Asset Disposition: Approximately $60,000
Total Savings: Ultimately, the dealership realized $661,083 in tax savings representing a meaningful boost to the dealership’s bottom line and return on its investment in improvements through expertly executed tax strategies.
Partnering for Success
The collaboration between the dealership and Herbein exemplifies how tailored strategies, and proactive planning can lead to substantial growth. By leveraging Herbein’s expertise, the dealership not only minimized their tax burden but also maximized their competitive edge in an industry poised for change and innovation. The dealership is now well positioned to continue serving its customers and expanding its presence in the market.
For more information on proactive tax planning and business tax consulting services, contact our Herbein tax team today.
