Narrative
In 2026, the owners of a medical office in Floyds Knobs, Indiana, undertook strategic tax planning to enhance their investment. The property consists of a professional medical facility designed for clinical use and improved with modern building systems and site enhancements. The structure was developed with high-quality materials and workmanship suited for long-term healthcare operations.
The property features durable interior finishes, upgraded lighting, specialized mechanical systems, and custom medical-specific improvements that support commercial functionality. Site elements include paved surfaces, landscaping, and related improvements that add value and utility to the overall property. Each component was evaluated as part of a detailed engineering-based cost review.
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 to accelerate depreciation and optimize tax benefits. This case study outlines the cost-segregation strategy employed and its significant impact on the property's financial outlook.
Objective
The primary objective of the cost segregation study was to identify and classify the commercial property’s assets within the $1,718,170.00 depreciable basis. By analyzing and reallocating building and site components into appropriate depreciation categories under MACRS, Engineered Tax Services (ETS) aimed to accelerate depreciation deductions and enhance the property owner’s overall tax savings and cash flow.
Methodology
ETS utilized a detailed engineering-based approach, including:
- Site Inspection: A physical inspection to document all structural, electrical, and land-improvement components.
- Document Review: Analysis of architectural plans, contractor invoices, and accounting schedules.
- Cost Analysis: Allocation of construction costs across building systems, site improvements, and personal property.
- Depreciation Calculation: Application of IRS Revenue Procedures, Tax Court rulings, and MACRS recovery periods to maximize allowable deductions.
Asset Allocation
5-Year Class Life
Total Depreciation Allocation: $427,528.95 Percentage of Total Depreciable Basis: 24.88%
5-year class life property consists of tangible personal property found across the medical office facility that are eligible for a 5-year recovery period.
- Specialized medical cabinetry, millwork, and clinical equipment support systems.
- Decorative fixtures, specialized flooring, and dedicated electrical for medical devices.
15-Year Class Life
Total Depreciation Allocation: $204,270.07 Percentage of Total Depreciable Basis: 11.89%
15-year class life property consists primarily of land improvements and exterior site systems qualifying for accelerated recovery.
- Site improvements such as parking lot asphalt, concrete walkways, and curbing.
- Landscaping, exterior site lighting, and utility infrastructure supporting the medical building.
39-Year Class Life
Total Depreciation Allocation: $1,086,370.99 Percentage of Total Depreciable Basis: 63.23%
39-year class life property includes structural components of the main building classified as § 1250 property.
- Primary building structure, including the foundation, envelope, and roofing.
- Essential building systems including HVAC, plumbing, and general electrical distribution.
Class Life Details:
Summary
The cost segregation analysis for the medical office in Floyds Knobs, Indiana, 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, nearly 37%, 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.
