Case Study: Cost Segregation Analysis for a Warehouse/Office Building in Columbia, TN

Narrative

In 2014, the owners of a warehouse/office facility in Columbia, Tennessee, sought to optimize their tax position through strategic cost segregation. The property consists of a single-story building encompassing 2,880 square feet, constructed in 2017.

The building features a combination of warehouse and office space, with modern architectural elements including brick veneer exterior and metal sandwich panel construction. The interior includes well-appointed finishes such as vinyl plank flooring, acoustic ceilings, and contemporary electrical and communication systems. The property also includes extensive site improvements such as asphalt paving, concrete sidewalks, and professional landscaping.

The owners engaged Engineered Tax Services (ETS) to perform a comprehensive cost segregation study of the property. The study aimed to identify and reclassify specific assets to accelerate depreciation and optimize tax benefits.

Objective

The primary objective was to analyze the $207,249 total depreciable basis to identify and reclassify building components into shorter depreciation life categories, thereby maximizing tax savings 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: $61,175.36 

Percentage of Total Basis: 29.52%

Key components included:

• Electrical systems and outlets
• Communication systems
• Carpet and vinyl flooring
• Cabinetry and millwork
• Security systems

15-Year Class Life

Total Allocation: $69,668.11 

Percentage of Total Basis: 33.62%

Key components included:

• Landscaping and irrigation
• Asphalt paving
• Concrete curbs and sidewalks
• Site signage
• Exterior lighting

39-Year Class Life

Total Allocation: $76,405.53 

Percentage of Total Basis: 36.87%

Key components included:

• Building structure
• Interior walls and doors
• Basic electrical
• Plumbing systems
• HVAC components

Class Life Details:

Summary

The cost segregation study resulted in significant tax savings by reclassifying approximately 63.14% of the total depreciable basis into accelerated depreciation categories (5 and 15-year). This reclassification generated accumulated depreciation of $132,820.34 through 2024, compared to $55,576.42 without cost segregation, resulting in an additional accumulated depreciation benefit of $77,243.92.