Case Study: Cost Segregation Analysis for a Medical Office Building in Charlotte, NC

Narrative

In 2023, the owners of a newly constructed medical office building in Charlotte, North Carolina engaged in strategic tax planning to optimize their investment. The single-story building, encompassing 12,064 square feet, was designed to cater to various medical practices and patient needs.

The building's exterior features modern architectural elements and durable finishes. The well-appointed interior includes high-efficiency HVAC systems, contemporary lighting fixtures, and specialized medical equipment. Amenities such as a break room and restroom facilities are also incorporated.

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 medical office building'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