Project Overview
Engineered Tax Services conducted a detailed engineering-based cost segregation study on a pre-school facility in Cape Coral, Florida with a total depreciable basis of $1,215,785. The study analyzed construction components, building systems, and site improvements to identify assets eligible for accelerated depreciation.
Through an in-depth engineering analysis and site inspection, ETS reclassified portions of the property into shorter tax recovery periods, allowing the property owner to accelerate depreciation deductions and significantly increase early-year tax savings.
Key Results
Total Depreciable Basis
$1,215,785
Asset Reclassification
| Asset Class | Allocation | % of Property |
|---|---|---|
| 5-Year Property | $230,670 | 18.97% |
| 15-Year Property | $261,746 | 21.53% |
| 39-Year Property | $723,369 | 59.5% |
Nearly 40% of the property’s cost basis was reclassified into accelerated depreciation categories (5-year and 15-year assets).
This reclassification significantly improves tax efficiency by allowing a large portion of the building to be depreciated much sooner than the standard 39-year schedule.
Property Details
Property Type: School / Pre-School Facility
Year Built: 2000
Year Acquired: 2024
Building Size: 6,060 square feet
Units: 1 building
Land Value: $204,215
Placed in Service: August 20, 2024
The engineering review identified substantial components that qualify as §1245 personal property and land improvements, which are eligible for accelerated depreciation.
Engineering Methodology
This study was performed using the detailed engineering approach, which is considered one of the most defensible methodologies under IRS guidelines.
The ETS team:
• Conducted a physical site inspection
• Reviewed architectural drawings and construction documentation
• Analyzed contractor invoices and cost records
• Performed material quantity take-offs and cost estimates
• Allocated direct and indirect construction costs to appropriate tax categories
• Reconciled findings with the taxpayer’s fixed asset schedules and project costs
This methodology ensures that asset classifications are supported by engineering calculations and IRS-recognized precedent.
Examples of Reclassified Assets
During the study, numerous components were identified as eligible for shorter depreciation lives, including:
5-Year Property
Appliances
Certain electrical components
Dedicated equipment outlets
Security systems
Interior specialty fixtures
15-Year Property (Land Improvements)
Playground equipment
Concrete walkways
Fencing
Landscaping
Parking lot striping
Drainage systems
39-Year Structural Components
Structural framing
Roofing
Exterior walls
Load-bearing elements
Many of these items are typically lumped into the building structure but qualify for faster depreciation when analyzed through an engineering-based study.
Benefits to the Property Owner
The cost segregation study provides several financial advantages:
Accelerated Depreciation
Reclassifying nearly 40% of the building’s cost allows the owner to claim larger deductions earlier in the asset’s life.
Increased Cash Flow
Earlier tax deductions reduce taxable income and improve short-term liquidity.
Strong Audit Defense
The study includes detailed engineering documentation and asset-level calculations to support the depreciation treatment.
Long-Term Tax Planning
The detailed asset breakdown also allows the owner to:
Track component-level depreciation
Identify future partial asset dispositions
Properly classify repair and maintenance expenses
