Case Study: Cost Segregation Analysis for a Gas Station/Carwash in Loxahatchee Groves, Florida

Narrative

In 2024, the owners of a gas station with an integrated carwash facility in Loxahatchee Groves, Florida, undertook strategic tax planning to enhance their return on investment. The property consists of a single-story building constructed in 2022. The modern facility featured fuel pumps with a sunshade canopy, a convenience store, and an automated carwash.

The building's exterior showcases a blend of modern commercial elements, including brick veneer, storefront glass, and aluminum doors. The interior is equipped with commercial-grade fixtures including LED lighting, HVAC rooftop units, security cameras, and specialized retail equipment. The property also includes underground fuel storage tanks, fuel dispensing pumps, and extensive paved areas for customer parking and traffic flow.

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 gas station/carwash facility'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

5-Year Class Life

Total Depreciation Allocation: $1,279,588.42
Percentage of Total Depreciable Basis: 28.24%

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

• Kitchen equipment (3-compartment sink, kitchen equipment prep sink)
• Security cameras and monitoring systems
• Walk-in freezer (8'x12′)
• Underground fuel storage tanks (fiberglass, 6,000 gal)
• Fuel dispensing pumps and islands
• Sun shade canopy
• Base cabinets and granite countertops
• Computer connections and security camera stations
• Stainless steel countertops
• Dedicated equipment outlets
• Telephone and television connections
• Canopy lighting
• Grocery reach-in doors
• Ceiling speakers and audio equipment

15-Year Straight Line

Total Depreciation Allocation: $2,236,610.54
Percentage of Total Depreciable Basis: 49.36%

15-year straight line assets identified in this study include:

• Building slab on grade
• Restroom fixtures (urinals, water closets, lavatories)
• Fluorescent and LED lighting
• Water heaters
• Roof drains and aluminum downspouts
• Restroom partitions
• Ceramic tile flooring
• Exterior storefront
• Skylights
• Aluminum/glass doors
• Exterior wall pack lighting
• Well pump and restroom exhaust fans
• Metal roof deck and EPDM roofing
• Brick veneer and building footings
• Electrical panels and wiring

15-Year Class Life

Total Depreciation Allocation: $1,014,801.03
Percentage of Total Depreciable Basis: 22.40%

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

• Asphalt paving
• Screen walls with stucco
• Pre-cast concrete wheel stops
• Concrete dumpster pad
• Site light bollards and poles
• Fuel island canopy
• Storm catch basins
• Dumpster gate
• Monument sign
• Concrete sidewalks and curbs

Class Life Details:

Summary

The cost segregation study for this gas station/carwash facility in Loxahatchee Groves, Florida 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.

Without cost segregation, the facility would have generated only $14,522.44 in depreciation deductions through 2024. With cost segregation, the property generated $2,756,721.14 in depreciation deductions. The total increase of depreciation was $2,742,198.70, providing significant tax benefits to the property owners.

This approach not only enhanced the facility'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 commercial real estate investments, particularly for specialized facilities with substantial personal property components.