Narrative
In 2021, the owners of an auto service business in Jacksonville, Florida undertook strategic tax planning to enhance their investment. The property consists of a single-story building encompassing 19,096 square feet, originally constructed in 1996. The auto service facility features 1 service bay designed to cater to a variety of vehicles.
The building's exterior showcases a blend of modern and classic architectural elements, including a durable metal sandwich panel exterior and aluminum panel roof. The interior is well-appointed, featuring amenities such as high-efficiency HVAC systems, plumbing for auto service equipment, and contemporary lighting fixtures. The property also includes a metal mezzanine for additional storage space.
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 auto service business'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: $318,022.99
Percentage of Total Depreciable Basis: 17.89%
5-year class life assets identified in this study include:
- Electrical systems (specialized equipment)
- Plumbing to auto service equipment
- Furniture and fixtures (cabinets, shelving, counters)
- Interior finishes (flooring, ceiling fans, decorative wall treatments)
- Communication and security systems (telephone connections, security cameras)
15-Year Class Life
Total Depreciation Allocation: $292,837.35
Percentage of Total Depreciable Basis: 16.47%
15-year class life assets identified in this study include:
- Land improvements (asphalt paving, sidewalks, fences, landscaping)
- Site utilities and infrastructure (site lighting, signage)
- Specialized storage areas
39-Year Class Life
Total Depreciation Allocation: $1,166,833.66
Percentage of Total Depreciable Basis: 65.64%
39-year class life assets identified in this study include:
- Structural components (walls, doors, windows, roofing)
- Building systems (HVAC, plumbing, electrical distribution)
- Permanent fixtures (restroom fixtures, lighting)
- Interior construction (drywall partitions, flooring, ceilings)
Class Life Details:
Summary
The cost segregation study for this auto service business in Jacksonville, Florida 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 auto service business'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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