Case Study: Cost Segregation Analysis for a Commercial Building in Great Neck, NY

Narrative

In 2015, the owners of a commercial building in Great Neck, NY sought to enhance their investment through strategic tax planning. The property consists of a single building originally constructed in 2015 with a total cost basis of $7,000,000 (not including land).

The owners engaged Engineered Tax Services (ETS), a licensed engineering firm specializing in cost segregation studies, to perform a comprehensive analysis of the property. The 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 building'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