Case Study: Cost Segregation Analysis for a Condominium in Nashville, TN

Narrative

In 2024, the owner of a condominium in Nashville, TN, undertook a strategic tax planning initiative to optimize their investment. The property, acquired in 2020, is a single-unit condo with a total square footage of 1,224 square feet. Built in 1987, the condo features modern amenities designed for comfortable living.

The interior includes high-efficiency HVAC systems and contemporary lighting fixtures, while the exterior showcases durable finishes. The property's condition is excellent, with substantial §1245 personal property identified during the study.

The owner engaged Engineered Tax Services (ETS) to perform a comprehensive cost segregation study. This study aimed to reclassify specific assets into shorter depreciation categories, accelerating depreciation and optimizing tax benefits. This case study outlines the strategy employed and its financial impact.

Objective

The primary objective was to identify and classify the condominium's assets to maximize tax savings through accelerated depreciation, providing both immediate and long-term financial benefits.

Methodology

ETS employed a detailed, engineering-based approach, which included:

1. Physical Inspection: conducting a thorough site visit to identify and photograph the property's components
2. Document Review: examining architectural plans, construction documents and accounting records
3. Cost Analysis: applying engineering principles to allocate costs to specific asset classifications
4. Depreciation Calculation: calculating depreciation using IRS-accepted methods such as the Modified Accelerated Cost Recovery System (MACRS)

Asset Allocation

5-Year Class Life

Total Depreciation Allocation: $130,661.21

Percentage of Total Depreciable Basis: 35.75%

Assets include:

• Appliances (refrigerators, dishwashers)
• Furniture and fixtures (cabinets, mirrors)
• Electrical systems and components
• Interior finishes (flooring, decorative wall treatments)

39-Year Class Life

Total Depreciation Allocation: $234,838.79

Percentage of Total Depreciable Basis: 64.25%

Assets include:

• Structural components (walls, windows)
• Building systems (HVAC, plumbing)
• Permanent fixtures and interior construction

Class Life Details:

Summary

The cost segregation study for this condominium in Nashville demonstrates significant financial benefits through accelerated depreciation. By reclassifying assets into shorter categories, the owner achieved enhanced tax savings and improved cash flow, showcasing the effectiveness of strategic tax planning.