Gas stations and convenience store (c-store) properties that qualify as a ‘retail motor fuel outlet’ can be depreciated over fifteen years.
The standard depreciation life for a commercial property is 39 years. However, the Tax Cuts and Jobs Act passed in 2017 (TCJA) allows for 100% bonus depreciation of qualified property with a recovery period of 20 years or less. This means that one hundred percent of the building basis (in TY 2022) can be depreciated in the first year.
The rules are very simple, according to IRS Publication 946 (how to depreciate property).
If the station gas station or convenience store
- generates at least fifty percent of its annual revenue from petroleum sales
- OR dedicates at least fifty percent of its marketing floor space to petroleum products
- OR is less than 1,400 square feet
the entire unadjusted basis, excluding land, can be depreciated over fifteen years.
This will allow the entire unadjusted basis (again, minus land) to be fully depreciated in the first year if the property closes before 12/31/2022. If the closing date rolls into 2023, eighty percent of the unadjusted basis can be taken in depreciation the first year.
Think this sounds too good to be true? Here is the verbiage from Publication 946:
Retail motor fuels outlet. Property qualifies as a retail motor fuels outlet if it is used to a substantial extent in the retail marketing of petroleum or petroleum products (whether or not it is also used to sell food or other convenience items) and meets any one of the following three tests.
- It is not larger than 1,400 square feet.
- 50% or more of the gross revenues generated from the property are derived from petroleum sales.
- 50% or more of the floor space in the property is devoted to petroleum marketing sales. A retail motor fuels outlet does not include any facility related to petroleum and natural gas trunk pipelines.
Recently TPTM helped a client choose between different convenience store properties. Upon evaluation, all generated approximately the same EBITDA and had about the same opportunity for future land appreciation. The client chose the property that generated more than seventy percent of its revenues from gasoline and oil sales. This choice created an immense depreciation opportunity which was used to offset profits from the client’s other non-passive properties.
Kevin Jerry is a nationally recognized expert in Tax Method Changes. He specializes in Cost Segregation, Tangible Property Regulations, and revenue recognition changes. Kevin graduated cum laude from the University of Cincinnati with a Master of Science in Real Estate Taxation. Over the last seven years, he has worked with Eric Wallace on the Tangible Property Regulations with some of the largest property owners in the country.