Narrative
In 2024, the owners of a warehouse storage facility in Broadview, IL engaged in strategic tax planning to optimize their investment. The property consists of a single-story building encompassing 83,000 square feet, originally constructed in 1960.
The building's exterior features durable materials and large windows. The interior is equipped with high-efficiency HVAC systems, water heaters, and contemporary lighting fixtures. The property also includes a parking area with access gates.
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:
- Physical Inspection: conducting a thorough site visit to identify and photograph the property's components
- Document Review: examining architectural plans, construction documents and accounting records
- Cost Analysis: applying engineering principles to allocate costs to specific asset classifications
- Depreciation Calculation: calculating depreciation using IRS-accepted methods such as the Modified Accelerated Cost Recovery System (MACRS)
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Discover MoreAsset Allocation
5-Year Class Life
Total Depreciation Allocation: $597,583.09
Percentage of Total Depreciable Basis: 9%
5-year class life assets identified in this study include:
- Electrical systems (dedicated equipment outlets)
- Appliances (refrigerators, utility sinks)
- Furniture and fixtures (cabinets, shelving, countertops)
- Interior finishes (vinyl flooring, ceiling fans, decorative lighting)
- Security and access systems (cameras, key card readers, parking gates)
15-Year Class Life
Total Depreciation Allocation: $475,587.74
Percentage of Total Depreciable Basis: 7.16%
15-year class life assets identified in this study include:
- Land improvements (asphalt paving, fencing, site signage, landscaping)
- Certain building components (dock levelers, overhead doors)
39-Year Class Life
Total Depreciation Allocation: $5,566,829.17
Percentage of Total Depreciable Basis: 83.84%
39-year class life assets identified in this study include:
- Building structure (foundation, walls, roof structure)
- Building systems (HVAC, plumbing, electrical distribution)
- Permanent fixtures (restroom fixtures, fire protection, doors and windows)
- Interior construction (drywall, ceilings, standard lighting)
Class Life Details:
Summary
The cost segregation study for this warehouse storage facility in Broadview, IL 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.
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