Case Study: Cost Segregation Analysis for a Retail Property in Atlanta, Georgia

Narrative

In 2022, the owners of a standalone retail property in Atlanta, Georgia, sought to optimize their tax position through strategic tax planning. The property, originally constructed in 1956, consists of a single-story building with various retail-specific features and improvements. The property was acquired in December 2022 for a total depreciable basis of $1,074,183.

The building features a blend of retail-specific elements including checkout counters, security systems, specialized lighting, and various technological infrastructure components. The property also includes significant land improvements such as asphalt paving, landscaping, and exterior lighting systems.

Objective

The primary objective of the cost segregation study was to identify and reclassify building components into shorter depreciation life categories, thereby accelerating depreciation deductions and improving cash flow for the property owner.

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: $192,965.33 Percentage of Total Depreciable Basis: 17.96%

5-year class life assets identified in this study include:

• Retail equipment and fixtures
• Security systems
• Specialized electrical
• Communications infrastructure
• Point of sale systems

15-Year Class Life

Total Depreciation Allocation: $191,300.30 Percentage of Total Depreciable Basis: 17.81%

15-year class life assets identified in this study include:

• Land improvements
• Paving and curbing
• Site utilities
• Landscaping

39-Year Class Life

Total Depreciation Allocation: $689,917.37 Percentage of Total Depreciable Basis: 64.23%

39-year class life assets identified in this study include:

• Building structure
• Standard electrical
• Basic plumbing
• HVAC systems

Class Life Details:

Summary

The cost segregation study resulted in significant tax benefits:

• Total accumulated depreciation through 2023: $402,692.91
• Increase in accumulated depreciation: $374,002.13
• First-year bonus depreciation benefit: $385,002.72

The reclassification of assets into shorter recovery periods generated substantial immediate tax savings while maintaining compliance with IRS guidelines and regulations.