Narrative
In 2023, the owners of a funeral home in Zeeland, Michigan, undertook strategic tax planning to enhance their investment. The property consists of a single-story building encompassing 7,510 square feet. Originally constructed in 2000, the funeral home features amenities designed to cater to the needs of grieving families.
The building's exterior showcases a blend of brick veneer and aluminum gutters. The interior is well-appointed, featuring amenities such as a commercial kitchen with stainless steel counters and appliances, restrooms with ceramic tile flooring, and contemporary lighting fixtures throughout. The property also includes a porte-cochere entrance and asphalt paved parking lot.
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 funeral home'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:
- Physical Inspection: conducting a thorough site visit to identify and photograph the property's components
- Document Review: examining architectural plans, construction documents and accounting records
- Cost Analysis: applying engineering principles to allocate costs to specific asset classifications
- Depreciation Calculation: calculating depreciation using IRS-accepted methods such as the Modified Accelerated Cost Recovery System (MACRS)
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Discover MoreAsset Allocation
5-Year Class Life
Total Depreciation Allocation: $159,466.46
Percentage of Total Depreciable Basis: 21.66%
5-year class life assets identified in this study include:
- Kitchen equipment and appliances
- Specialized electrical systems
- Furniture and fixtures
- Interior finishes and decorative elements
- Communication and security systems
15-Year Class Life
Total Depreciation Allocation: $193,951.20
Percentage of Total Depreciable Basis: 26.34%
15-year class life assets identified in this study include:
- Land improvements (parking lot, sidewalks, curbs, landscaping)
- Site utilities and infrastructure (site lighting, signage)
- Concrete equipment pads
39-Year Class Life
Total Depreciation Allocation: $382,780.48
Percentage of Total Depreciable Basis: 51.99%
39-year class life assets identified in this study include:
- Structural components (walls, roof, windows, doors)
- Building systems (HVAC, plumbing, electrical)
- Permanent fixtures (restroom fixtures, lighting)
- Interior construction (drywall, ceilings, flooring)
Class Life Details:
Summary
The cost segregation study for this funeral home in Zeeland, Michigan, demonstrates the substantial financial advantages of strategic tax planning. By reclassifying property components into shorter depreciation categories, the study enabled accelerated depreciation, resulting in maximized tax savings and improved cashflow. This approach not only enhanced the funeral home's profitability but also allowed for more efficient capital management and future property upgrades. The case study illustrates how cost segregation can significantly boost the financial performance of real estate investments.
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