Case Study: Cost Segregation Analysis for a Self-Storage Facility in Sebring, Florida

Narrative

In 2017, a self-storage facility in Sebring, Florida underwent a cost segregation study to optimize tax benefits through accelerated depreciation. The property consists of five single-story buildings encompassing 67,637 square feet, with 531 storage units. Originally constructed in 2007, the facility features modern metal construction with specialized storage components.

The buildings showcase metal construction with aluminum siding and roofing, including roll-up doors for individual storage units. The facility includes security features such as video surveillance, access control gates, and perimeter fencing. Interior amenities include climate-controlled units, LED lighting systems, and modern electrical infrastructure.

The property owners engaged Engineered Tax Services (ETS) to perform a comprehensive cost segregation study. This analysis identified and reclassified various building components into shorter depreciation periods, generating significant tax savings through accelerated depreciation.

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: $456,832.64 Percentage of Total Basis: 34.45%

Components include:

• Security systems and cameras
• Electrical systems and wiring
• Computer and telecommunications infrastructure
• Special lighting fixtures
• Flooring and interior finishes

7-Year Class Life

Total Allocation: $147,517.28 Percentage of Total Basis: 11.13%

Components include:

• Storage unit partitions
• Roll-up doors
• Special storage components

15-Year Class Life

Total Allocation: $189,592.56 Percentage of Total Basis: 14.30%

Components include:

• Paving and site improvements
• Fencing and gates
• Exterior lighting
• Landscaping
• Storm drainage systems

39-Year Class Life

Total Allocation: $532,032.13 Percentage of Total Basis: 40.12%

Components include:

• Building shell and structure
• Foundation and footings
• Roof structure
• Basic electrical and plumbing

Class Life Details:

Summary

The cost segregation study resulted in reclassifying approximately 59.88% of the total depreciable basis into shorter recovery periods. This generated accumulated depreciation of $779,166.79 through 2023, compared to $216,745.86 without cost segregation – an increase of $562,420.93 in accumulated depreciation benefits.