Case Study: Cost Segregation Analysis for a Medical Office Building in Broken Arrow, OK

Narrative

In 2024, the owners of a medical office building in Broken Arrow, Oklahoma, sought to optimize their tax position through strategic cost segregation. The property consists of a two-story building encompassing 5,085 square feet. Originally constructed in 2005, the medical office building features modern medical facilities and professional office spaces.

The building includes specialized medical equipment connections, dedicated electrical systems, and custom cabinetry designed for medical office use. The property also features modern HVAC systems, comprehensive lighting solutions, and professional-grade plumbing installations suited for medical operations.

Objective

The primary objective was to identify and reclassify building components into shorter depreciation life categories to accelerate depreciation and optimize tax benefits for the property owner. The total depreciable basis analyzed was $1,818,500, with a land value of $201,500.

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: $354,934.56 Percentage of Total Basis: 19.52%

Key components included:

• Computer connections and data infrastructure
• Medical equipment connections
• Specialized electrical systems
• Custom cabinetry and countertops
• Office equipment connections

15-Year Class Life

Total Allocation: $331,105.14 Percentage of Total Basis: 18.21%

Key components included:

• Site improvements
• Parking lot and striping
• Exterior lighting
• Landscaping and irrigation
• Concrete sidewalks and curbing

39-Year Class Life

Total Allocation: $1,132,460.30 Percentage of Total Basis: 62.27%

Key components included:

• Building structural elements
• Basic electrical systems
• Standard plumbing
• HVAC main systems
• Roof and exterior walls

Class Life Details:

Summary

The cost segregation study resulted in significant tax savings through accelerated depreciation. The first-year accumulated depreciation increased from $9,714.21 (without cost segregation) to $426,427.51 (with cost segregation), providing an additional benefit of $416,713.30 in accelerated depreciation.