Case Study: Cost Segregation Analysis for a Mixed-Use Property in Miami, Florida

Narrative

In 2024, the owners of a mixed-use residential/commercial property in Miami, Florida, undertook strategic tax planning to enhance their investment. The property consists of a single two-story building encompassing both residential and commercial spaces. Originally constructed in 1937, the building underwent significant renovations and was placed in service on February 16, 2024.

The property features a combination of modern amenities and classic architectural elements, including CMU wall construction with stucco exterior finish, built-up tar/gravel roofing, and comprehensive electrical and mechanical systems. The interior spaces are well-appointed with custom cabinetry, granite countertops, ceramic tile flooring, and modern appliances.

Objective

The primary objective of the cost segregation study was to identify and reclassify building components into appropriate tax depreciation categories to optimize tax benefits through accelerated depreciation. The total depreciable basis of $1,223,852 was analyzed to maximize potential tax savings.

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: $195,661.88 

Percentage of Total Depreciable Basis: 15.99%

Key components included:

• Kitchen appliances and fixtures
• Custom cabinetry
• Computer and telecommunications systems
• Specialized electrical equipment

15-Year Class Life

Total Depreciation Allocation: $66,917.28 

Percentage of Total Depreciable Basis: 5.47%

Key components included:

• Site improvements
• Exterior lighting
• Concrete sidewalks
• Fencing and landscaping

39-Year Class Life

Total Depreciation Allocation: $961,272.84 

Percentage of Total Depreciable Basis: 78.54%

Key components included:

• Building structural elements
• Basic electrical systems
• Plumbing systems
• HVAC infrastructure

Class Life Details:

Summary

The cost segregation study resulted in significant tax benefits through the reclassification of assets into accelerated depreciation categories. The analysis identified that approximately 21.46% of the total depreciable basis could be depreciated on an accelerated schedule. The first-year accumulated depreciation increased from $27,458.22 without cost segregation to $196,105.81 with cost segregation, resulting in an additional depreciation benefit of $168,647.59.