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

Narrative

In 2023, the owners of a self storage facility in Fairburn, Georgia, undertook strategic tax planning to enhance their investment. The property consists of three 3-story buildings encompassing 113,907 square feet. Originally constructed in 2023, the self storage facility features 849 units designed to cater to a variety of storage needs.

The buildings' exteriors showcase durable materials and large windows. The interiors are well-appointed, featuring amenities such as high-efficiency HVAC systems, water heaters, and contemporary lighting fixtures. The property also includes recreational facilities.

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: $7,798,951.45 

Percentage of Total Depreciable Basis: 41.58%

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

• Electrical systems (specialized equipment)
• Data communications systems
• Television connections
• Mailboxes
• Storage unit doors
• Interior finishes
• Video surveillance systems

15-Year Class Life

Total Depreciation Allocation: $2,169,455.33 

Percentage of Total Depreciable Basis: 11.57%

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

• Land improvements (parking spaces, sidewalks, fences, landscaping)
• Site utilities and infrastructure (site lighting, signage)

39-Year Class Life

Total Depreciation Allocation: $8,789,926.47 

Percentage of Total Depreciable Basis: 46.86%

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

• Structural components (walls, doors, windows, roofing)
• Building systems (HVAC, plumbing, electrical distribution)
• Permanent fixtures (restroom fixtures, emergency lighting, signage)
• Interior construction (drywall partitions, flooring, ceilings)

Class Life Details:

Summary

The cost segregation study for this farm in Texas 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 farm'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 agricultural real estate investments.