Case Study: Cost Segregation Analysis for a Dialysis Center Lansign, MI

Narrative

In 2021, the owners of a medical dialysis facility in Lansing, MI, embarked on a journey to enhance their investment through precise tax planning. This single-story building was constructed in 2006 and encompasses a total area of 20,050 square feet. The property houses three tenant spaces and has an overall value of $3,136,511.00.

The structure features fixtures suited to a medical environment, including custom cabinetry, vinyl flooring and advanced electrical systems designed for safety and efficiency. Key elements of the property include specialized equipment outlets, accent lighting and various types of shelving, all of which contribute to its functional design.

To maximize the financial benefits and optimize the depreciation schedule of the property, the owners collaborated with Engineered Tax Services (ETS) to conduct a comprehensive cost segregation analysis. This strategic move aimed to identify and reclassify assets with accelerated recovery periods, ultimately unlocking significant tax savings for the facility.

Objective

The primary objective of this cost segregation study was to meticulously identify and classify the property's assets to optimize the owners' tax benefits. By breaking down and reallocating components into shorter depreciation life categories, ETS aimed to enhance the financial efficiency of the medical dialysis facility. The study sought to ensure that each asset was accurately categorized, allowing the owners to maximize their tax savings under current tax laws.

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

Class Life Details:

5-Year Class Life

Total Depreciation Allocation: $864,032.54  

Percentage of Total Depreciable Basis: 27.55%

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

• Specialized electrical systems and outlets
• Custom cabinetry and shelving
• Furniture and fixtures
• Carpet and vinyl flooring
• Communication systems (computer and telephone connections)
• Break room and kitchen equipment
• Security systems (cameras and CCTV)
• Accent and pendant lighting
• Dedicated equipment outlets
• Generator systems

15-Year Class Life

Total Depreciation Allocation:** $379,112.24  

Percentage of Total Depreciable Basis: 12.09%

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

• Parking and sidewalks
• Asphalt and concrete paving
• Exterior lighting (light poles)
• Fencing and landscaping
• Concrete equipment pads and curbs
• Signage

39-Year Class Life

Total Depreciation Allocation: $1,893,366.22  

Percentage of Total Depreciable Basis: 60.37%

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

• Building structure (footings, slab, framing)
• Exterior features (brick veneer, doors, windows)
• Roofing systems
• HVAC and ductwork systems
• Electrical service and distribution systems
• Plumbing systems (restrooms, water heaters)
• Fire protection systems
• Interior finishes (drywall, acoustic ceilings, doors)
• General lighting systems (recessed and drum lights)

Accumulated Depreciation:

Summary

The cost segregation study for this medical dialysis facility highlights the substantial financial advantages of strategic tax planning. By reclassifying various property components into shorter depreciation categories, the study facilitated accelerated depreciation, resulting in significant tax savings and improved cashflow. This approach not only enhanced the facility's profitability but also optimized capital management, illustrating the powerful impact of cost segregation on real estate investment.