Cost Segregation Auto Dealership Case Study

Dealership construction has evolved. Nowadays showrooms are in a competition with online dealers, prompting owners to invest heavily in sleek glass storefronts, technology such as digital feature walls, and speedy service bays. Many owners overlook the tax benefits that come with these upgrades. This auto dealership, shows how much money is left on the table.

The building was completed in 2024, featuring a sturdy masonry and steel frame, along with stylish vinyl plank and tile floors, and gypsum drywall. It also included a comprehensive site package that encompassed paving, lighting, fencing, and landscaping. The property officially started operations in February 2025, just as the ownership group was gearing up to file their first tax return on the property.

Instead of treating the entire cost basis as a single asset for depreciation, the owners opted for a cost segregation study.

For this cost segregation auto dealership case study, engineers analyzed the entire property, breaking it down into its various components and reclassifying everything that qualifies for a shorter recovery period. The result changed the depreciation schedule as well as the tax bill.

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Cost Segregation Auto Dealership Case Study

• Location: Las Vegas, Nevada

• Property type: Auto Dealership

• Year built: 2024

• Placed in service: February 2025

• Total cost basis: $17,039,225

The Cost Seg Results

A cost segregation study digs deeper than just the building's facade... it pinpoints every asset that can be classified as personal property or land improvements. For this case study, the engineers took a close look at the construction documents and site plans, leading to the reclassification of the following:

5yr property (Distributive Trades & Services): $1,203,553 (7.06%)

Showroom cabinetry, FF&E, specialty lighting, network cabling, dedicated electrical and plumbing service to fixtures, tire inflation equipment, and the drive thru car wash system.

15yr property (Land Improvements): $3,507,436 (20.58%)

Site paving, landscaping and irrigation, site fencing and gates, site lighting, storm drainage, and other site utilities.

39yr property (Building): $12,328,235 (72.35%)

The core building structure, plumbing system, electrical system, HVAC, and fire protection.

Combined, engineers moved 27.64% of the total cost basis, or $4,710,989, out of the standard 39yr bucket and into asset classes eligible for accelerated recovery.

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The Bonus Depreciation Advantage

Because this property was placed in service after the 100% bonus depreciation rate was restored, every dollar of that reclassified 5yr and 15yr property qualified for full 1yr expensing. That is the entire premise behind 100% bonus depreciation... property with a recovery period of 20 years or less can be written off completely in year one, instead of spread across its useful life.

Without a cost seg study, this auto dealership would have depreciated the full $17,039,225 as nonresidential real property, generating roughly $382,871 in 1yr depreciation under straight-line convention.

With the study, the ownership entity claimed:

• $4,710,989 in 1yr bonus depreciation on the reclassified 5yr and 15yr property

• $277,015 in standard first-year depreciation on the remaining 39yr building

• $4,987,004 in total 1yr depreciation

By the Numbers

• Additional 1yr depreciation from cost segregation: $4,604,133

• Estimated 1yr value, at a 37% federal rate: approximately $1,703,529

This is more of a deferral than a permanent savings. The $4.7 million figure comes from the depreciation that the property would have claimed over the next 39 years, and it effectively lowers the property's basis. This means that if the property is sold, there will be a larger taxable gain.

Additionally, the 5yr personal property is subject to Section 1245 recapture upon sale, which is taxed at ordinary income rates instead of capital gains rates. The real advantage here is the time value of accelerating the deduction into the first year instead of spreading it out over four decades, along with the immediate flexibility that cash provides.

Now, regarding that $1.7 million figure, it assumes that the ownership group can actually use the deduction in the first year, which isn’t guaranteed. If the owners don’t materially participate in the dealership, the Section 469 passive activity rules could suspend the loss instead of allowing it to offset other income.

Dealership structures that separate the ownership entity from the operating company should also take a look at rental rules before assuming passive treatment in either direction.

While none of this negates the benefits of cost segregation, it does mean that the usable amount in the first year really hinges on the specific tax situation of the ownership group.

This case study serves as a clear example of what a cost segregation study can do for a car dealership. The cost basis of the building didn’t change, only the classification did. That change in classification made all the difference, allowing for the depreciation of a larger portion of the property this year instead of just a small fraction.

With a 37% federal tax rate, the study accelerated about $1.7 million of tax into the first year instead of spreading it over four decades. Depending on the ownership group's ability to utilize the deduction, that’s capital available right now for investment.

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The FindCostSeg online directory is here to help you learn more about cost segregation providers and the details of accelerated depreciation strategies. It’s a handy resource for anyone looking to dive deeper into this area.

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