Narrative
In 2025, the owners engaged Engineered Tax Services for a cost segregation analysis for an auto service facility in Richardson, Texas. The property, a single-story building built in 1971, was placed in service in September 2025, with a total depreciable basis of $1,031,510.00. 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 is a 7,000 square foot auto service facility featuring specialized automotive equipment, vehicle lifts, service bays, and infrastructure essential to automotive repair operations. Engineered Tax Services reviewed the available fixed assets, including the building systems, specialized equipment, and site improvements, to determine the proper classification and cost allocation under the Modified Accelerated Cost Recovery System (MACRS).
The engineering-based analysis of the auto service facility determined that 20.80% of the property qualified for a 5-year class life, 10.54% for a 15-year class life, and 68.66% 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 $1,031,510.00 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.
Learn More About Cost Segregation
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: $214,505.61 Percentage of Total Depreciable Basis: 20.80%
5-year class life property consists of tangible personal property found throughout the auto service facility that is eligible for a 5-year recovery period.
- Specialized automotive equipment including vehicle lifts and automotive lifts
- Service bay equipment, computer connections, and telecommunications systems
- Dedicated electrical outlets and equipment panels for automotive operations
- Security cameras and monitoring equipment
- Point-of-sale systems and office equipment specific to service 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.
- No assets were identified in this category for this facility
15-Year Class Life
Total Depreciation Allocation: $108,750.92 Percentage of Total Depreciable Basis: 10.54%
15-year class life property consists primarily of land improvements and exterior site systems, which support the facility's automotive service operations.
- Asphalt paving, concrete paving, and parking area improvements
- Site grading, concrete sidewalks, and curbing
- Exterior signage and parking space striping
- Concrete wheel stops and site circulation improvements
39-Year Class Life
Total Depreciation Allocation: $708,253.46 Percentage of Total Depreciable Basis: 68.66%
39-year class life property includes structural components of the main building classified as § 1250 property, which must be depreciated over a 39-year recovery period.
- Building envelope including metal roof deck and building slab
- Structural components including CMU walls and building foundations
- HVAC ductless split systems and warehouse suspended heaters
- Building lighting, acoustic ceiling systems, and general electrical service
- Plumbing systems, restroom facilities, and water distribution
- Interior and exterior metal doors, overhead doors, and storefront systems
- Interior finishes including ceramic tile flooring, wall coverings, and drywall partitions
Class Life Details:
Summary
The cost segregation analysis for the auto service facility in Richardson, Texas, 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 is generated by reclassifying a substantial portion of the depreciable basis, over 31%, into accelerated recovery periods of 5 and 15 years. This represents a significant opportunity for the taxpayer, particularly given the specialized nature of the automotive service equipment and dedicated building systems.
This result improves near-term tax efficiency and supports capital planning and reinvestment decisions for the automotive service business.
