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

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, with 849 storage units. Originally constructed in 2023, the non-metal self-storage facility features modern amenities and security systems.

The facility includes comprehensive site improvements such as paving, landscaping, retaining walls, and storm drainage systems. The interior features high-efficiency electrical systems, security monitoring equipment, and climate control systems. The property also includes office space and various tenant amenities.

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.

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 Allocation: $7,798,951.45 

Percentage of Total Basis: 41.58%

Key components included:

• Storage unit doors
• Security and access control systems
• Data communications infrastructure
• HVAC equipment
• Specialized electrical systems

15-Year Class Life

Total Allocation: $2,169,455.33 

Percentage of Total Basis: 11.57%

Key components included:

• Site improvements
• Paving and curbing
• Retaining walls
• Landscaping
• Storm drainage systems

39-Year Class Life

Total Allocation: $8,789,926.47 

Percentage of Total Basis: 46.86%

Key components included:

• Building structure
• Roofing systems
• Basic electrical systems
• Plumbing systems
• General construction elements

Class Life Details:

Summary

The cost segregation study for this self-storage facility in Fairburn, Georgia, resulted in significant tax savings through the reclassification of assets. The total depreciable basis of $18,758,333.25 was strategically allocated across different recovery periods, with over 53% of the assets qualifying for accelerated depreciation. This resulted in a first-year accumulated depreciation of $8,468,024.14, compared to only $340,696.22 under standard depreciation methods – a difference of $8,127,327.92 in accelerated depreciation benefit.