Case Study: Cost Segregation Analysis for a Self-Storage Facility in Livingston, Montana

Narrative

In 2023, the owners of a self-storage facility in Livingston, Montana, sought to optimize their tax position through strategic cost segregation. The property consists of 14 single-story buildings encompassing 42,592 square feet, with 304 storage units. Originally constructed in 1994, the facility features metal construction with reconfigurable partitions and roll-up doors.

The property was acquired in 2023 for $4,895,000, with a depreciable basis of $4,678,098.54 (excluding land value of $216,901.46). The facility includes substantial personal property components, making it an excellent candidate for cost segregation analysis.

Objective

The primary objective was to identify and reclassify eligible building components into shorter depreciation life categories to accelerate depreciation deductions and improve cash flow for the property owners.

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: $9,023.72 Percentage of Total Depreciable Basis: 0.19%

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

• Custom cabinets
• Laminate countertops
• Vinyl flooring
• Vinyl baseboards

7-Year Class Life

Total Depreciation Allocation: $3,462,742.41 Percentage of Total Depreciable Basis: 74.02%

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

• Pre-engineered metal frame
• Metal siding
• Reconfigurable partitions
• Roll-up doors

15-Year Class Life

Total Depreciation Allocation: $1,148,192.66 Percentage of Total Depreciable Basis: 24.54%

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

• Chain link fencing
• Concrete slabs
• Aggregate paving
• Site lighting
• Building footings

39-Year Class Life

Total Depreciation Allocation: $58,139.73 Percentage of Total Depreciable Basis: 1.24%

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

• Structural components
• Basic building systems
• Permanent fixtures

Class Life Details:

Summary

The cost segregation study resulted in significant tax benefits:

• Total accumulated depreciation through 2023: $3,723,972.22
• Without cost segregation: $24,989.84
• Net benefit: $3,698,982.38 in accelerated depreciation

This analysis demonstrates the substantial financial advantage of cost segregation for self-storage facilities, particularly those with significant personal property components.