Case Study: Cost Segregation Analysis for a Self-Storage Facility in Buford, GA

Narrative

In 2023, the owners of a self-storage facility in Buford, GA undertook strategic tax planning to enhance their investment. The property consists of six single-story buildings encompassing 59,812 square feet. Originally constructed in 1965, the facility features 330 storage units designed to cater to a variety of customers.

The buildings' exteriors showcase a blend of corrugated aluminum siding and wood siding. The interiors are well-appointed, featuring amenities such as high-efficiency warehouse suspended heaters and contemporary lighting fixtures. The property also includes a range of site improvements, including aggregate and asphalt paving, fencing, and a covered RV parking area.

The owners engaged Engineered Tax Services (ETS) to perform a comprehensive cost segregation study of the property. This study aimed to identify and reclassify specific assets, enabling the acceleration of depreciation and optimizing tax benefits. This case study outlines the cost segregation strategy employed and its significant impact on the financial outlook of the property.

Objective

The primary objective of the cost segregation study was to identify and classify the self-storage facility'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

5-Year Class Life

Total Depreciation Allocation: $67,622.63 Percentage of Total Depreciable Basis: 2.95%

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

• Computer connections
• Dedicated equipment outlets
• Security camera system
• Laminate wood flooring
• Vinyl baseboard

15-Year Class Life

Total Depreciation Allocation: $1,966,505.50 Percentage of Total Depreciable Basis: 85.73%

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

• Aggregate and asphalt paving
• Fencing and gates
• Signage
• Covered RV parking
• Sidewalks and curbs

27.5-Year Class Life

Total Depreciation Allocation: $259,743.39 Percentage of Total Depreciable Basis: 11.32%

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

• Building envelope and structure
• Roofing
• Plumbing and gas utilities
• Electrical distribution
• HVAC systems
• Overhead doors

Class Life Details:

Accumulated Depreciation Comparison:

Summary

The cost segregation study for this self-storage facility in Buford, GA demonstrates the substantial financial advantages of strategic tax planning. By reclassifying property components into shorter depreciation categories, the study enabled accelerated depreciation, resulting in maximized tax savings and improved cashflow. This approach not only enhanced the facility's profitability but also allowed for more efficient capital management and future property upgrades. The case study illustrates how cost segregation can significantly boost the financial performance of real estate investments.