Case Study: Cost Segregation Analysis for a Single-Family Home in Davenport, FL

Narrative

In 2023, the owners of a residential property in Davenport, Florida, initiated a comprehensive tax planning strategy to maximize their investment. The property features a newly constructed two-story house built in 2023. The building covers a total area of 4,399 square feet and stands as a single residential unit.

The structure of the house showcases modern construction materials and techniques, ensuring durability and aesthetic appeal. The property includes a variety of high-end finishes such as granite countertops, custom cabinetry and energy-efficient appliances. 

Additionally, the property benefits from exterior improvements such as a screened patio and meticulously landscaped grounds, which contribute to its overall value. The total depreciable basis of the property is calculated at $841,850.00, with a land value of $98,000.00.

In a bid to optimize the financial benefits and enhance the property's depreciation schedule, the owners collaborated with Engineered Tax Services (ETS) to conduct a detailed cost segregation analysis. This strategic move aimed to unlock significant tax savings by accelerating depreciation on eligible property components, thereby enhancing the property's long-term financial outlook.

Objective

The primary objective of the cost segregation study was to identify and classify the residential property's assets to optimize tax savings. By segregating and reclassifying components into shorter depreciation life categories, ETS aimed to provide immediate and long-term financial benefits through accelerated depreciation. The study ensured accurate categorization under current tax laws, enhancing financial efficiency and maximizing fiscal advantages for the 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