Case Study: Cost Segregation Analysis for a Car Wash in Pittsburg, KS

Narrative

In 2023, the owners of a car wash in Pittsburg, Kansas, undertook strategic tax planning to enhance their investment. The property consists of a single-story building encompassing 2,505 square feet. Originally constructed in 2022, the car wash features modern car washing equipment designed to efficiently serve customers.

The building's exterior showcases a durable split rib masonry wall construction. The interior is well-appointed, featuring amenities such as a conveyor car wash system, touch-free drive-thru equipment, vacuums, and an air dry blower system. The property also includes ample concrete paving for vehicle access.

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. 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 car wash'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