Case Study: Cost Segregation Analysis for a Dialysis Clinic in Amityville, NY

Narrative

In 2022, the owners of a medical facility in Amityville, NY, aimed to enhance their investment through strategic tax planning. The property consists of a single-story building designed specifically for dialysis services. Constructed in 1964, the facility spans 10,456 square feet and has been valued at $2,563,114.66. 

The building's structure features a combination of functional materials and specialized medical equipment. The interior includes modern finishes such as epoxy flooring, acoustic ceilings and energy-efficient lighting systems. Additionally, the facility is equipped with advanced medical infrastructure, including a dedicated dialysis station, medical gas water heater and specialized plumbing for medical use. The property also includes necessary land improvements like parking spaces, concrete sidewalks and site lighting.

To maximize the financial benefits and improve the property's depreciation schedule, the owners collaborated with Engineered Tax Services (ETS) to conduct a comprehensive cost segregation analysis. This strategic approach aimed to uncover significant tax savings by accelerating depreciation on eligible property components.

Objective

The principal objective of this cost segregation study was to identify and classify the assets of the medical facility to optimize the owners' tax benefits. By breaking down and reallocating components into shorter depreciation life categories, ETS aimed to enhance the property's financial efficiency. The study sought to ensure that every asset was accurately categorized, enabling significant tax savings and improved cashflow under the current tax regulations.

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

5-Year Class Life

Total Depreciation Allocation: $744,453.52

Percentage of Total Depreciable Basis: 29.04%

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

• Electrical systems (specialized equipment)
• Medical equipment and panels
• Furniture and fixtures
• Vinyl and carpet flooring
• Laminate and granite countertops
• Security and communication equipment

15-Year Class Life

Total Depreciation Allocation: $273,595.92

Percentage of Total Depreciable Basis: 10.67%

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

• Parking spaces and sidewalks
• Fencing and railings
• Site lighting and signage
• Landscaping and storm catch basins
• Concrete curbs and pads

39-Year Class Life

Total Depreciation Allocation: $1,545,065.22

Percentage of Total Depreciable Basis: 60.28%

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

• Building structure and CMU walls
• Roofing and HVAC systems
• Plumbing fixtures and water heaters
• Electrical service and distribution systems
• Interior and exterior doors and windows
• Fire alarm and sprinkler systems
• Acoustic ceilings and drywall partitions

Class Life Details:

Accumulated Depreciation Comparison:

Summary

The cost segregation study for this medical facility in Amityville, NY, highlights the substantial financial advantages of strategic tax planning. By reclassifying property components into shorter depreciation categories, the study facilitated accelerated depreciation, significantly maximizing tax savings and improving cashflow. This approach enhanced the facility's financial efficiency, allowing for better capital management and future investment opportunities.