Case Study: Cost Segregation Analysis for a Medical Office in Okeechobee, FL

Narrative

In 2018, the owners of a medical office building in Okeechobee, Florida undertook a strategic tax planning initiative to enhance their investment returns. The property consists of a single-story building encompassing 3,920 square feet, originally constructed in 2004. The medical office features modern medical equipment installations, specialized electrical systems, and custom cabinetry designed specifically for healthcare operations.

The building was found to be in very good condition during inspection and contained substantial §1245 personal property components. The property includes specialized medical equipment connections, dedicated electrical systems, custom millwork, and various building systems designed specifically for medical office use.

Objective

The primary objective of the cost segregation study was to identify and reclassify building components into shorter depreciation life categories to accelerate depreciation deductions and optimize tax benefits for the property owner. The analysis aimed to properly segregate personal property (§1245) from real property (§1250) components.

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