Narrative
In 2023, the owners of a retail standalone property in Fort Wayne, Indiana undertook strategic tax planning to enhance their investment. The property consists of a single-story building encompassing 8,604 square feet. Originally constructed in 1974, the retail facility was acquired in 2023 for a total cost basis of $273,196.03, with land value of $762,421.97.
The building's exterior features a blend of modern and classic architectural elements, including aluminum roof panels and multiple access points. The interior is well-appointed with various specialized systems and fixtures to support retail operations, including dedicated electrical systems, HVAC equipment, and specialized lighting.ployed and its significant impact on the financial outlook of the farm.
Objective
The primary objective of the cost segregation study was to identify and classify the 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:
- Physical Inspection: conducting a thorough site visit to identify and photograph the property's components
- Document Review: examining architectural plans, construction documents and accounting records
- Cost Analysis: applying engineering principles to allocate costs to specific asset classifications
- Depreciation Calculation: calculating depreciation using IRS-accepted methods such as the Modified Accelerated Cost Recovery System (MACRS)
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5-Year Class Life
Total Depreciation Allocation: $2,410.58
Percentage of Total Depreciable Basis: 0.88%
Key components included:
- Specialized electrical systems
- Communications and security equipment
- Kitchen equipment and fixtures
- Office equipment connections
15-Year Class Life
Total Depreciation Allocation: $260,696.18
Percentage of Total Depreciable Basis: 95.42%
Key components included:
- Site improvements
- Paving and concrete work
- Landscaping
- Exterior lighting
39-Year Class Life
Total Depreciation Allocation: $10,089.28
Percentage of Total Depreciable Basis: 3.69%
Key components included:
- Building structural elements
- Basic electrical systems
- Standard plumbing systems
- HVAC distribution
Class Life Details:
Summary
The cost segregation study for this retail property in Fort Wayne demonstrated significant opportunities for accelerated depreciation. The analysis identified that 96.3% of the total depreciable basis could be reallocated to shorter recovery periods (5 and 15-year classifications), resulting in substantial tax savings. The first-year accumulated depreciation increased from $291.88 to $211,172.03, providing an immediate benefit of $210,880.15 in accelerated depreciation.
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