Tuesday, July 14, 2009

15 Year Depreciation, “I’m Lovin’ It”

Amid the hundreds of pages contained within the Emergency Economic Stabilization Act of 2008, there potentially exists an extremely valuable tool for those interested in real estate investment. A new law enables restaurant buildings and improvements to be depreciated on a 15 year basis if they are placed in service within the calendar year of 2009 and more than 50% of their square footage is dedicated to “the preparation of, and seating for on-site consumption of, prepared meals”. What does this mean for the investor? Well, restaurant real estate generally has to be depreciated on a 39 year basis, which means one could increase their depreciation tax shield by close to 40% if they act within 2009. That translates into large dollar sign increases on after tax income.

Below is an illustration of just how much a depreciation shield increase of close to 40% could affect one’s cash flow. For purposes of the comparison, we will be using a McDonald’s and a Burger King, both with solid credit ratings, placed in service in 2009 and 2007 respectively. Since the McDonald’s was placed in service in 2009 it can take advantage of the accelerated depreciation schedule, unlike the Burger King.

What is evident from this example is that restaurant real estate is the place to invest in 2009. In this case we saw an after tax cash flow difference of $55,671 in favor of McDonalds for one year. If all else holds equal, over 15 years that becomes an $835,065 difference. This could make a huge difference to all who are thinking of investing in 2009 and goes to show that change on Capital Hill can turn into cash in your pockets.

“This analysis is not provided as legal or tax advice. We simply intend to illustrate the benefits of a new beneficial tax-rulemaking. Any literal interpretation of this analysis on your specific situation should be discussed with your own tax advisor”


  1. Nice post Jonathan---we will remind our 1031 exchange investor clients if they are mulling over a drugstore versus a new restaurant NNN lease.

  2. James let us know if Calkain can be of any service to you.

  3. Jonathan,

    Would acquisition of an existing restaurant building by an investor be eligible for 15-year depreciation as a result of the most recent tax bill?