Case Study: Cost Segregation Analysis for a Self-Storage Facility in Bend, Oregon

Narrative

In 2024, the owners of a self-storage facility in Bend, Oregon, sought to optimize their tax position through strategic tax planning. The property consists of three single-story buildings originally constructed in 1995, featuring metal construction and dedicated storage units. The facility encompasses 7,600 square feet of rentable storage space.

The property includes modern security features such as surveillance cameras, access control systems, and perimeter fencing. The exterior is equipped with adequate lighting and secured entry points. The facility's infrastructure includes asphalt paving, storm drainage systems, and professional landscaping.

The owners engaged Engineered Tax Services (ETS) to perform a comprehensive cost segregation study of the property. This study aimed to identify and reclassify specific assets, enabling the acceleration of depreciation and optimizing tax benefits.

Objective

The primary objective of the cost segregation study was to identify and classify the farm's assets to optimize the owners' tax savings. By breaking down and reallocating components into shorter depreciation life categories, ETS aimed to provide both immediate and long-term financial benefits through accelerated depreciation.

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

7-Year Class Life

Total Allocation: $166,917.13  Percentage of Total Basis: 61.02%

Key components included:

• Self-storage partitions and roll-up doors
• Security camera systems
• Electrical service components
• Interior lighting fixtures
• Fire protection equipment

15-Year Class Life

Total Allocation: $106,635.87 Percentage of Total Basis: 38.98%

Key components included:

• Asphalt paving
• Fencing and security gates
• Storm drainage systems
• Landscaping
• Site lighting
• Retaining walls

Class Life Details:

Summary

The cost segregation study identified significant opportunities for accelerated depreciation. The analysis resulted in reclassifying 61.02% of the depreciable basis to 7-year property and 38.98% to 15-year property. This reclassification generated substantial tax savings through accelerated depreciation, with accumulated depreciation through 2024 increasing from $68,680.51 (without cost segregation) to $238,920.92 (with cost segregation), resulting in a total benefit of $170,240.41.