Case Study: Cost Segregation Analysis for an Apartment Complex in Decatur, Georgia

Narrative

In 2024, the owners of an apartment complex in Decatur, Georgia, undertook strategic tax planning to enhance their investment. The property consists of three 4-story buildings encompassing 90,587 square feet. Originally constructed in 2020, the 101-unit apartment complex features contemporary design elements and amenities.

The buildings' exteriors showcase a blend of fiber cement siding and large windows. The interiors are well-appointed, featuring high-efficiency HVAC systems, electric water heaters, and modern lighting fixtures. The property also includes a range of recreational facilities, including a swimming pool with a concrete pool deck.

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 apartment complex'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