Accruit Blog

Trucking Industry Case Study

CASE STUDIES: Trucking Scenarios

To get a real feel for the financial impact of a Like-Kind Exchange (LKE) program, it is best to review the 5-year cash flow benefit for certain volume levels. Every business is unique so each implementation of an LKE program is slightly different; however, these examples should provide a general understanding of the benefits.

Small Equipment Industry Case Study

Case Study: Equipment Dealer Recognizes $2.5M Increase in Cash Flow with a Like-Kind Exchange Program

Primary Concern
In the years 2002 through 2004 the client took advantage of Bonus Depreciation. This created additional cash flow for those years but the expiration of Bonus in January 2005 meant the client would soon have to pay that benefit back.

Challenge
The client's financial department and tax advisor were challenged by leadership to uncover a method to mitigate or even delay the pending cash drain anticipated upon the expiration of bonus depreciation. The company had realized a significant benefit by taking bonus however the existing positive benefit would be greatly reduced if additional credit had to be secured to pay back the benefit of bonus depreciation.

Koshnogos Trucking Case Study

To get a real feel for the financial impact of the institution of an LKE program, it is best to review some typical situations. Each implementation of an LKE program is slightly different, however, these case studies should provide a general understanding of the benefits.

Koshnogos Truck Leasing
Koshnogos Finance is in the business of leasing tractors and trailers. Given the high usage rates associated with their leased trucks, they typically upgrade their clients’ trucks every four years. One common transaction for Koshnogos is the sale and repurchase of a tractor for inclusion in their lease portfolio.

The Imperial Real Estate Case Study

The Problem

William Smith purchased The Imperial Apartments in 1998 for $1.5M and he's been taking approximately $50,000 in depreciation deductions against the property each year (27.5 year MACRS residential rental property). He sold the building in February 2008 for $2.5M.

At the time of sale, his tax basis in the property was $1M. He purchased another apartment building in July, paying $3.25M. The new building is also 27.5 year MACRS residential rental property and is depreciated for tax purposes from the time of acquisition. Smith's 2008 tax consequences are significant.

The tax gain recognized on the sale of the apartment building is $1.5M ($2.5M sale price - $1M adjusted tax basis = $1.5M), making his total tax $350,000.

Case Study: Flying 9 Farms

Flying 9 Farms* is a mid-sized farm based on the West Coast. Their profile is typical of the average American thoroughbred farm in size and scope of operations.

The Problem
In early 2006, Flying 9 Farms successfully bid on a horse named Slammin' Sammy. After winning several Grade 1 races with the horse, Flying 9 decided to sell him. Owners believed Slammin' Sammy would likely bring $600,000 at auction, but were concerned with the potential tax bill since the horse had a very low tax basis. Flying 9's controller concluded that the farm would owe approximately $200,000 in federal and state taxes upon sale of Slammin' Sammy.

Automotive Scenarios Case Study

CASE STUDIES: Automotive Scenarios

To get a real feel for the financial impact of a Like-Kind Exchange (LKE) program, it is best to review the 5-year cash flow benefit for certain volume levels. Every business is unique so each implementation of an LKE program is slightly different; however, these examples should provide a general understanding of the benefits.

Case Study: Moneymaker Farms

Moneymaker Farms* is a leading East coast thoroughbred operation that has produced a long line of stakes winners stretching back over the past several decades.

The Problem
After a successful racing career, a horse named Ronnie's Revenger was retired for stud duty. As his offspring began winning races, the horse quickly became one of the most talked about young sires in the industry. Within several years, the stallion began commanding stud fees in excess of $100,000. Moneymaker Farms decided to divide ownership of the stallion into 20 fractional, undivided interests or shares. The owners retained 11 of the shares and began marketing the remaining nine, each of which was offered for $2 million. The owners of the farm were concerned with the amount of tax gain that they would recognize upon the sale of each share. After consulting with their controller, they realized that every share sale would generate over $700,000 in tax.

Case Study: Grand Mesa Equipment

› Large Equipment Dealer Realizes $20M Cash Flow Boost in Six Months with Accruit 1031 Like-Kind Exchange Solution

Primary Concern
Grand Mesa Equipment (GME) consistently maintains a positive income position and, due to consistent turnover in its rental fleet, is burdened with a substantial tax liability on the sale of these assets.

Challenge
GME's leadership was presented with a strategic acquisition opportunity. As a result, an improved cash position became very important in helping them meet their business objectives. GME's tax department estimated that by implementing an LKE program, the company would realize a substantial increase of its available cash, meaning it could complete its acquisition without taking on further debt. However, after investigating the complexity involved in managing an LKE program (as well as the need to add head count to administer it internally), GME was on the verge of walking away from 1031s for good.

Now is the time to think about 1031 exchanges

Why put a tax-deferral program in place when taxes are low?

Lessors and other savvy owners of business assets understand the financial benefits of a well-managed, programmatic 1031 Like-Kind Exchange (LKE) system. But "bonus depreciation," a currently low capital gains tax rate, a reduced effective overall tax rate resulting from reduced corporate profits, and the prospect of increasing tax rates in the future are all causing asset owners to question whether a 1031 LKE program makes sense for them at this time. The simple answer - regardless of current taxable status - is probably a resounding "yes."

The highest level of financial and data security available

It's no surprise that people are concerned about security these days. We've all seen the stories - from ponzi schemes to hackers to highly publicized business failures - so it makes sense that individuals and business would want to make sure their valuable financial and information assets are being safeguarded by the most reliable processes available. At Accruit we hear these questions and we welcome them because we have no higher priority than the security of our clients’ funds and data.
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