Case Study: Cost Segregation Analysis for a Retail Strip Mall in Wisconsin

Narrative

In 2024, the owners of a retail strip mall in Wisconsin, acquired the property seeking to maximize their investment's financial performance. The property comprises five single-story buildings constructed in 2006, totaling 269,315 square feet and housing 54 individual tenant spaces. The buildings showcase a mix of architectural styles with durable exterior finishes and large storefront windows. The mall offers various amenities for shoppers and tenants, including high-efficiency HVAC systems, ample parking, and well-maintained landscaping.

Recognizing the potential for tax optimization, the owners partnered with Engineered Tax Services (ETS) to conduct a comprehensive cost segregation study. The goal was to identify and reclassify specific building components into shorter depreciation life categories, thereby accelerating depreciation and enhancing the property's financial outlook. This case study highlights the cost segregation strategy employed by ETS and its substantial impact on the strip mall's profitability.

Objective

The primary objective of the cost segregation study was to identify and classify the farm'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