Acquiring a business and using bonus depreciation to defer taxes - ATM routes vs car washes

Tax professional here. These are excellent questions that definitely need CPA input before making any large purchases. Let me break down some key points: For the ATM route, you can't depreciate the entire purchase price. You'd need to allocate the purchase between tangible assets (the ATMs themselves), intangible assets (customer contracts, goodwill), and possibly other components. Only the tangible assets qualify for bonus depreciation. The $170k difference between equipment value and purchase price would likely be allocated to goodwill or other intangibles, which have different depreciation schedules (typically 15 years straight-line for intangibles). Regarding the car wash, you're on the right track. Car wash buildings can qualify as 15-year property under certain conditions. You'd be able to take bonus depreciation on the building value (excluding land), but again, you'd need to allocate the purchase price between land, building, equipment, and any intangibles. Only certain components qualify for bonus. Material participation is another important aspect to consider - you need 500+ hours annually or meeting one of the other tests to use these losses against your active income.

I went through something similar last year when I was looking to defer some taxes. I found this service called taxr.ai (https://taxr.ai) that was incredibly helpful for analyzing depreciation scenarios like yours. They have tools that can model different purchase allocations and show you the tax impact over multiple years. What impressed me was how they helped me understand the IRS requirements for material participation - turns out there are 7 different tests you can meet, not just the 500 hour one. They even analyzed my specific situation and showed me which businesses would work best given my other commitments.

I tried taxr.ai after seeing it mentioned here, and it was honestly a game-changer for my situation. I was comparing buying a self-storage facility versus a car wash, and they helped me understand which would give better tax benefits given my income level. Their analysis showed me that I was overestimating potential bonus depreciation by about 40% because I wasn't accounting for land value and certain improvements that don't qualify. Saved me from making some serious planning errors! Best thing was I could run multiple scenarios to see how different purchase prices and allocations would affect my tax situation over a 5-year period.

For those struggling with IRS questions about material participation or depreciation, I highly recommend Claimyr (https://claimyr.com). I was stuck in limbo trying to get clarification from the IRS on a cost segregation study for a commercial property, and it was impossible to get through to anyone who could help. Claimyr got me connected to an actual IRS agent in about 20 minutes when I had been trying for weeks. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c. The agent was able to clarify exactly how the IRS treats certain allocations between building components and equipment for depreciation purposes, which was crucial for my planning.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it myself for a question about bonus depreciation recapture rules. I was connected to an IRS specialist in about 15 minutes when I had previously tried calling multiple times without getting through. The agent walked me through exactly how recapture works if I sell a business asset before the end of its recovery period - information that directly applied to the car wash situation being discussed here. Definitely worth it for getting definitive answers straight from the IRS instead of relying on forum advice (including mine!).

From my experience buying a car wash last year, here's what I learned: The cost segregation study is CRITICAL. I paid about $7,500 for a professional study, but it identified about 35% of the purchase price as 5-year property (equipment) and 40% as 15-year property (specialized components). Only 15% was allocated to the building (39-year) and 10% to land. Make sure whoever does your taxes understands the difference between Section 179 (which has income limitations) and bonus depreciation (which can create losses). In my case, bonus depreciation created a $180k loss that offset my W2 income because I met the material participation requirements. Also, document EVERYTHING for material participation. I keep a detailed log of hours, activities, and have email trails to substantiate my involvement. The IRS is increasingly scrutinizing this area.

Has anyone looked into whether EV charging stations qualify for accelerated depreciation? With all the tax incentives through the Inflation Reduction Act, I was wondering if adding those to a car wash or other business property might give additional tax benefits.

Thanks for all the detailed insights everyone! As someone who's been researching similar investments, I'm curious about the practical side of documenting material participation. @Landon Morgan mentioned keeping detailed logs - what specific activities count toward the hours requirement? For example, if I'm researching potential ATM locations online or reviewing financial statements at home, does that count? Or does it need to be more hands-on involvement like physically visiting sites or meeting with vendors? Also, has anyone dealt with the IRS questioning their material participation claims? I want to make sure I'm building a defensible record from day one rather than scrambling to document everything after the fact. The car wash example is really helpful - 10-12 hours per week seems very manageable while still clearly meeting the 500+ hour threshold. I'm leaning toward that type of business over ATM routes based on the discussion here about purchase price allocation challenges.