Narrative
In 2025, the owners of a commercial property in Athens, Georgia, engaged Engineered Tax Services (ETS) to conduct a cost segregation study. The building was placed in service on December 27, 2024, with a total depreciable basis of $4,038,274.40. The purpose of the engagement was to analyze the property’s construction and identify assets eligible for shorter depreciation recovery periods under IRS guidelines.
The property includes a modern carwash facility featuring specialized mechanical, electrical, and plumbing systems designed for commercial operations. The site contains concrete paving, curbing, drainage, and other exterior improvements supporting vehicle access and functionality. Each system and component was reviewed to determine its proper classification and cost allocation under the Modified Accelerated Cost Recovery System (MACRS).
The owners commissioned ETS to perform this detailed engineering-based analysis to optimize their tax benefits through accelerated depreciation. The study determined that 41.34% of the property qualified for a 5-year class life, 38.30% for a 15-year straight-line recovery period, and 20.36% for a 15-year class life. No portion of the property was classified as 39-year real property. This case study outlines the cost segregation strategy employed and its measurable financial impact on the property.
Objective
The primary objective of the cost segregation study was to identify and classify all components within the $4,038,274.40 depreciable basis so that qualifying assets could be assigned shorter recovery periods under MACRS, improving the timing of allowable depreciation deductions.
Methodology
- Physical Inspection: conducting a site visit to identify and document major building and site components.
- Document Review: analyzing cost data, construction documentation, and accounting records to verify and reconcile total project costs.
- Cost Analysis: applying engineering estimation methods and accepted cost references (e.g., R.S. Means) with reconciliation to the taxpayer’s records.
- Depreciation Calculation: assigning class lives and recovery methods consistent with IRS guidance (including Rev. Proc. 87-56 and the IRS Cost Segregation Audit Techniques Guide).
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Asset Allocation
5-Year Class Life
Total Depreciation Allocation: $1,669,609.79 Percentage of Total Depreciable Basis: 41.34%
5-year class life property in this study consists of items classified by ETS as tangible personal property and dedicated systems eligible for a 5-year recovery period, as documented in the report.
- Short-lived tangible personal property used in operations
- Electrical and mechanical components dedicated to specific equipment
- Moveable fixtures and non-structural interior elements
- Specialized systems supporting wash equipment and controls
15-Year Class Life (Straight-Line)
Total Depreciation Allocation: $1,546,624.31 Percentage of Total Depreciable Basis: 38.30%
15-year straight-line property in this study consists of land improvements and exterior site systems eligible for a 15-year recovery period, as documented in the report.
- Site improvements such as paving, curbing, and lighting
- Drainage, stormwater, and utility infrastructure
- Concrete equipment pads and exterior site structures
15-Year Class Life
Total Depreciation Allocation: $822,040.30 Percentage of Total Depreciable Basis: 20.36%
Additional 15-year class life property in this study consists of qualifying land-improvement and site-related assets assigned a 15-year recovery period, as documented in the report.
- Land improvements and site features qualifying for accelerated recovery
- Irrigation systems, landscaping, and permanent exterior enhancements
Class Life Details:
Summary
The cost segregation study for the Athens, Georgia, property identified assets eligible for shorter recovery periods and documented their allocation across 5-year and 15-year categories. This engineering-based approach aligns the property’s components with appropriate MACRS class lives and provides the taxpayer with supportable depreciation schedules.
According to the report’s depreciation comparison through 2024, accumulated depreciation without cost segregation was $4,314.40, while accumulated depreciation with cost segregation was $2,462,185.51. The total increase in accumulated depreciation was $2,457,871.11.
This result improves near-term tax efficiency and supports capital planning and reinvestment decisions. The documentation prepared by ETS provides audit-ready support consistent with IRS guidance and accepted engineering practices.
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