Case Study: Cost Segregation Analysis for an Office Highrise in New York, NY

Narrative

In 2022, the owners of a 14-story office highrise building in New York, NY undertook strategic tax planning to enhance their investment. Originally constructed in 1958.

The building's exterior showcases a blend of modern and classic architectural elements. The interior is well-appointed, featuring high-efficiency HVAC systems, elevators, and contemporary lighting fixtures. Amenities include a restaurant with commercial kitchen equipment.

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 building'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