Case Study: Cost Segregation Analysis for a Warehouse in Colbert, Oklahoma

Narrative

In 2023, the owners of a warehouse in Colbert, Oklahoma, undertook strategic tax planning to enhance their investment. The property consists of a single 1-story building encompassing 37,823 square feet. Originally constructed in 2013, the warehouse features a variety of storage and office spaces designed to cater to the needs of the business.

The building’s exterior showcases durable metal sandwich panels and corrugated metal fencing. The interior is well-appointed, featuring amenities such as high-efficiency metal halide lighting, acoustic ceilings, and ceramic tile flooring in certain areas. The property also includes land improvements such as concrete paving, sidewalks, and an aggregate parking area.

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 warehouse’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: $49,138.74 

Percentage of Total Depreciable Basis: 6.0%

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

• Computer connections and telephone equipment
• Warehouse and office equipment outlets
• Ceiling fans and security cameras
• Cabinetry and countertops
• Certain interior finishes and coverings

15-Year Class Life

Total Depreciation Allocation: $145,764.36 

Percentage of Total Depreciable Basis: 17.8%

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

• Pre-cast concrete screen walls
• Aggregate paving and concrete sidewalks
• Rolling entrance gate and metal fencing
• Bollards

39-Year Class Life

Total Depreciation Allocation: $625,096.90 

Percentage of Total Depreciable Basis: 76.2%

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

• Structural components (walls, roofing, slab)
• Building systems (HVAC, plumbing, electrical)
• Restroom fixtures and partitions
• Doors, windows, and overhead doors
• Lighting fixtures

Class Life Details:

Summary

The cost segregation study for this warehouse in Colbert, Oklahoma 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 warehouse’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 real estate investments.