Fixed Asset Planning for Dealerships

October 2019 | Article

By Travis Mlodzik

Every seven to ten years, a dealership can expect that vehicle manufacturers will require a re-image of the dealership’s buildings. The projects could be small, with just flooring changes and re-painting, or they may be larger and require a complete interior renovation. When it comes to planning for these projects, many dealerships focus on how to maintain operations during the construction, which is critical to success. But it’s also important to consider Fixed Asset Services and the benefits that can come of this planning before, during and after the construction project.

The “4 Pillars” of Fixed Asset Services can be highly beneficial to dealerships considering a re-imaging project.

Construction Tax Planning
Construction Tax Planning (CTP) bridges the gap between the construction and accounting phases of the project to assist with compliance of current tax law, maximization of accelerated deductions and setting up the framework to realize the tax benefits in the future. Identifying tax deductions early and often can enhance the tax benefit of the project. There are four stages to construction tax planning that can be customized for every project:

  • The first stage includes assessing the project as early as the design phase to chart a course to achieve the client’s objectives.
  • The second stage include periodic reviews of the contractor’s pay applications to be proactive in realizing the benefit.
  • Analyzing the construction costs in real time and offering up-to-date tax benefit projections is the third stage.
  • Implementing the results into fixed asset software in a meaningful manner—the final stage—will set the foundation for future tax savings.

Fixed Asset Planning
Fixed asset planning is a great tool for identifying opportunities beyond compliance to maximize yearly deductions, and it can be customized in a variety of methods or combinations. Aspects of fixed asset planning include assigning tax depreciation recovery periods to assets and determining bonus depreciation treatment. During the re-imaging project, some costs may qualify as repairs and maintenance, which could lead to direct expensing of those costs. In addition, during the re-imaging project, items within the building will most likely get removed. These items, along with the demolition costs associated with them, could be eligible for partial disposition deductions. These tools allow for depreciation schedule clean-up from previous years as well as preparing the fixed assets for future .

Even though the standard is delayed, there’s still plenty to do to prepare for the new lease standard. Learn more at our webinar.

Energy Incentives
Although the Section 179D Energy Efficient Deduction is currently expired, it is still available for assets that were placed in service between January 1, 2006 through December 21, 2017. This deduction is available for HVAC, building envelope and lighting up to $1.80 per square foot. Learn more here. Claiming this deduction for previously placed-in-service projects requires a site visit of the building, using energy modeling software to determine qualification, and filing a Form 3115 with the current year tax return.

There have been discussions in Congress to extend certain provisions again, including Section 179D. Currently, there is no set timetable as to when or if these provisions will get extended, but knowing that Congress is still discussing them provides some hope that they will become active again in the future.

Cost Segregation
Out of the “4 Pillars” of Fixed Asset Planning, cost segregation is the most commonly used strategy for maximizing deductions. A cost segregation study, in its simplest form, will identify assets within the project that can qualify for a shorter recovery period than the traditional 39-years to create tax deductions. During the process of completing a cost segregation study, strategies utilized in the other pillars are typically incorporated into the project to maximize the potential tax deductions.

Planning is Key
Even though the “4 Pillars” have differences in strategies, they all have one main similarity, Planning. Planning is the key to any successful project. You don’t plan for a re-imaging project once the construction stops, so why treat fixed assets as an afterthought? The earlier into a re-imaging project you can bring an Eide Bailly professional into the mix, the smoother and more beneficial Fixed Asset Planning can be for your dealership.

Ready to find the tax savings you deserve? Fill out a Request for Assessment today.

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