Case Study: Cost Segregation Analysis for a Medical-Dental Office in Cheyenne, Wyoming

Narrative

In July 2024, the owners of a medical-dental office building in Cheyenne, Wyoming undertook a strategic tax planning initiative to enhance their investment returns. The property consists of a two-story building encompassing 3,558 square feet with two tenant spaces. Originally constructed in 2000, the medical-dental facility features modern medical office specifications and dental treatment areas.

The building's construction includes structural brick walls, wood framing, and steel panel roofing. The interior features specialized medical and dental equipment connections, custom cabinetry, and modern building systems including HVAC, electrical, and plumbing designed for medical/dental use. The property also includes site improvements such as paved parking areas, concrete sidewalks, and professional landscaping.

Objective

The primary objective of the cost segregation study was to identify and classify the medical-dental office'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 Allocation: $119,354.91 Percentage of Total Basis: 26.3%

Key components included:

• Dental chair assemblies and medical equipment
• Specialized electrical and plumbing systems
• Custom cabinetry and countertops
• Communication and security systems

15-Year Class Life

Total Allocation: $78,025.93 Percentage of Total Basis: 17.2%

Key components included:

• Paved parking areas
• Site lighting
• Landscaping and irrigation
• Concrete sidewalks and curbing

39-Year Class Life

Total Allocation: $256,520.62 Percentage of Total Basis: 56.5%

Key components included:

• Building structure and shell
• Standard electrical and plumbing
• Basic HVAC systems
• Fire protection systems

Class Life Details:

Summary

The cost segregation study resulted in significant tax benefits:

• Total Building Basis: $453,901.46
• Land Value: $221,098.54
• First Year Depreciation Without Cost Segregation: $5,334.31
• First Year Depreciation With Cost Segregation: $132,552.09
• First Year Benefit: $127,217.78

The analysis enabled substantial acceleration of depreciation deductions, providing immediate tax savings and improved cash flow for the property owners.