Narrative
In 2025, the owners engaged Engineered Tax Services for a cost segregation analysis for an assisted living property in Sandy, Oregon. The property, which consists of a building and associated improvements, was placed in service in August 2025, with a total depreciable basis of $4,553,640.00. The purpose of the engagement was to analyze the property’s construction and acquisition costs to identify assets eligible for shorter depreciation recovery periods under IRS guidelines.
The property includes specialized features and structures essential to assisted living operations, as well as land improvements and personal property. Engineered Tax Services reviewed the available fixed assets, including the building systems and equipment, to determine the proper classification and cost allocation under the Modified Accelerated Cost Recovery System (MACRS).
The engineering-based analysis of the cost segregation study for the assisted living facility determined that 24.49% of the property qualified for a 5-year class life, 0.00% for a 7-year class life, 12.05% for a 15-year class life, and 63.46% for a 39-year class life. This case study outlines the cost segregation strategy employed to optimize tax benefits through accelerated depreciation.
Objective
The primary objective of the cost segregation study was to identify and classify all components within the $4,553,640.00 depreciable basis so that qualifying assets could be assigned shorter recovery periods under MACRS, improving the timing of allowable depreciation deductions.
Methodology
- Physical Inspection: conducting a site visit to identify and photograph specific property items and determine the nature of the project and its intended use.
- Document Review: analyzing cost data, construction documentation, and accounting records to verify and reconcile total project costs.
- Cost Analysis: applying engineering estimation methods, such as those cited from R.S. Means, to compute unit costs and reconcile total costs to the taxpayer's records.
- Depreciation Calculation: assigning class lives and recovery methods consistent with IRS guidance (including Revenue Procedure 87-56) and grouping project items with similar class lives.
Explore how cost segregation can help you and how it can enhance your property's profitability. Dive deeper into our strategies.
Asset Allocation
5-Year Class Life
Total Depreciation Allocation: $1,115,210.23 Percentage of Total Depreciable Basis: 24.49%
5-year class life property consists of tangible personal property found across the assisted living facility assets that are eligible for a 5-year recovery period.
- Specialized medical and resident care equipment.
- Decorative fixtures, carpeting, and furniture for common areas and resident rooms.
- Short-lived assets and kitchen equipment dedicated to facility operations.
7-Year Class Life
Total Depreciation Allocation: $0.00 Percentage of Total Depreciable Basis: 0.00%
7-year class life property includes certain furniture, fixtures, and other specialized equipment not classified as 5-year property, which were not identified in significant amounts for this specific study.
- General-purpose office furniture and administrative systems.
- Systems and components classified under specialized Asset Depreciation Range (ADR) classes.
15-Year Class Life
Total Depreciation Allocation: $548,609.79 Percentage of Total Depreciable Basis: 12.05%
15-year class life property consists primarily of land improvements and exterior site systems, which form the largest component of accelerated assets outside of the building core.
- Site improvements such as asphalt paving for parking, concrete curbing, and walkways.
- Exterior site lighting, landscaping, and utility infrastructure qualifying for accelerated recovery.
39-Year Class Life
Total Depreciation Allocation: $2,889,819.97 Percentage of Total Depreciable Basis: 63.46%
39-year class life property includes structural components of the main building classified as § 1250 property, which must be depreciated over a standard long-term recovery period.
- Main building structure, including foundation, walls, and roof.
- Permanent HVAC, plumbing, and electrical distribution systems that serve the building core.
Class Life Details:
Summary
The cost segregation analysis for the assisted living property in Sandy, Oregon, identified assets eligible for shorter recovery periods and documented their allocation across 5-year, 15-year, and 39-year categories. This engineering-based approach aligns the property’s components with appropriate MACRS class lives and provides the taxpayer with supportable depreciation schedules.
The total increase in accumulated depreciation from this study, while not explicitly provided in the summary of results, is generated by reclassifying a substantial portion of the depreciable basis over 36%, into accelerated recovery periods of 5 and 15 years.
This result improves near-term tax efficiency and supports capital planning and reinvestment decisions. Engineered Tax Services provides audit-ready documentation consistent with IRS guidance and accepted engineering practices.
