Narrative
In 2024, the owners of a warehouse facility in Richmond, Virginia, undertook strategic tax planning to enhance their investment returns. The property consists of a single-story building encompassing 231,871 square feet. Originally constructed in 1950, the warehouse includes both storage and office spaces designed to accommodate two tenant spaces.
The building features a metal roof deck, CMU wall construction, and includes modern amenities such as high-efficiency lighting systems, sprinkler systems, and updated electrical infrastructure. The property also includes significant land improvements such as asphalt paving, concrete sidewalks, and professional landscaping.
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Objective
The primary objective of the cost segregation study was to identify and reclassify specific building components into shorter depreciation life categories to accelerate depreciation deductions and optimize tax benefits for the property owner.
Methodology
ETS employed a detailed, engineering-based approach, which included:
- Physical Inspection: conducting a thorough site visit to identify and photograph the property's components
- Document Review: examining architectural plans, construction documents and accounting records
- Cost Analysis: applying engineering principles to allocate costs to specific asset classifications
- Depreciation Calculation: calculating depreciation using IRS-accepted methods such as the Modified Accelerated Cost Recovery System (MACRS)
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Asset Allocation
5-Year Class Life
Total Depreciation Allocation: $635,179.98 Percentage of Total Depreciable Basis: 6.67%
5-year class life assets identified in this study include:
- Electrical systems and lighting
- Computer and telephone connections
- Special equipment outlets
- Cabinet work and countertops
- Security systems
15-Year Class Life
Total Depreciation Allocation: $1,577,592.94 Percentage of Total Depreciable Basis: 16.57%
15-year class life assets identified in this study include:
- Land improvements
- Paving and curbing
- Site lighting
- Fencing and gates
- Landscaping
39-Year Class Life
Total Depreciation Allocation: $275,000 Percentage of Total Depreciable Basis: 55%
39-year class life assets identified in this study include:
- Building shell and structure
- Roof system
- Foundation
- Basic electrical
- Plumbing systems
Class Life Details:
Summary
The cost segregation study resulted in significant tax savings through accelerated depreciation. The analysis identified:
- First-year depreciation increase: $1,384,025.21
- Without cost segregation: $111,916.71
- With cost segregation: $1,495,941.92
This strategic reclassification of assets provides substantial immediate tax benefits while maintaining compliance with IRS guidelines.
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