Case Study: Cost Segregation Analysis for a Bank in Arlington Heights, Illinois

Narrative

In 2024, the owners of a bank facility in Arlington Heights, Illinois, implemented strategic tax planning to optimize their commercial investment. The property consists of a single-story building originally constructed in 2023. This modern financial institution features state-of-the-art banking amenities designed to serve the community's financial needs.

The building's exterior showcases contemporary commercial architecture with stone veneer accents, aluminum composite material (ACM) paneling, and an aluminum/glass storefront entrance system. The interior is equipped with specialized banking infrastructure including a pneumatic tube system for drive-thru services, bullet-proof teller windows, a night depository safe, and comprehensive security camera systems throughout the facility. The property also includes essential site improvements such as asphalt parking areas with striping, concrete sidewalks, landscaping, and monument signage.

The owners engaged Engineered Tax Services (ETS) to perform a comprehensive cost segregation study of the property with a total depreciable basis of $2,988,464. This study aimed to identify and reclassify specific assets, enabling the acceleration of depreciation and optimizing tax benefits. This case study outlines the cost segregation strategy employed and its significant impact on the financial outlook of the property.

Objective

The primary objective of the cost segregation study was to identify and classify the bank'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)

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Asset Allocation

5-Year Class Life

Total Depreciation Allocation: $662,015.27
Percentage of Total Depreciable Basis: 22.15%

5-year class life assets identified in this study include:

  • Bank-specific equipment (pneumatic tube system, night depository safe, bullet-proof windows, drive-thru window systems)
  • Electrical systems (dedicated equipment outlets, server room equipment outlets, ATM connections)
  • Security and communication systems (security cameras, telephone connections, computer network infrastructure)
  • Interior finishes (carpet flooring, laminate wood flooring, vinyl wall covering, decorative lighting fixtures)
  • Furniture and fixtures (upper and base cabinets, countertops, shelving, break room equipment)

15-Year Class Life

Total Depreciation Allocation: $433,905.58
Percentage of Total Depreciable Basis: 14.52%

15-year class life assets identified in this study include:

  • Land improvements (asphalt paving, concrete paving, parking space striping)
  • Site utilities and infrastructure (site lighting poles, electrical service equipment, storm drainage systems)
  • Site amenities (monument signage, concrete curbs, wheel stops, landscaping)
  • Exterior features (screen walls with stone veneer, dumpster gates, bollards)

39-Year Class Life

Total Depreciation Allocation: $1,892,543.16
Percentage of Total Depreciable Basis: 63.33%

39-year class life assets identified in this study include:

  • Structural components (building footings, structural steel, metal roof deck, CMU walls)
  • Building envelope (EPDM roofing, exterior storefront, brick veneer, windows and doors)
  • Core building systems (6-ton HVAC rooftop unit, general electrical panels, plumbing infrastructure)
  • Interior construction (drywall partitions, acoustic ceiling systems, ceramic tile, restroom fixtures)
  • Life safety systems (fire sprinkler system, emergency lighting, exit signs)

Class Life Details:

Summary

The cost segregation study for this bank in Arlington Heights, Illinois, demonstrates the substantial financial advantages of strategic tax planning. With a total depreciable basis of $2,988,464, the study successfully reclassified 36.67% of the property's components into shorter depreciation categories (5-year and 15-year class lives). This reclassification enabled accelerated depreciation, resulting in maximized tax savings and improved cash flow in the early years of ownership. The total increase of depreciation was $701,629.01 through 2024, representing a significant enhancement to the property's financial performance. This approach not only improved the bank's profitability but also allowed for more efficient capital management and potential reinvestment into facility improvements or expanded services.

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