Case Study: Office Building Cost Segregation
- United Tax Advisors
- Nov 13, 2024
- 2 min read
Updated: Nov 25, 2024
Office Building Cost Segregation Study
In this case study, United Tax Advisors worked with the owner of a high-value office building to reduce tax liabilities and boost cash flow through strategic cost segregation. With a basis of $6,120,000, our client aimed to capitalize on accelerated depreciation options to enhance immediate tax savings. By reclassifying assets into accelerated depreciation categories, our team identified key areas eligible for substantial first-year deductions, providing a significant financial benefit and optimizing cash flow for reinvestment opportunities. This study demonstrates how specialized tax planning can deliver powerful results for commercial property owners.
Commercial Office Space
Total Purchase Price: $6,120,000
In Service Date: August 20, 2022
Goal: Maximize tax savings through accelerated depreciation
Total Accelerated Depreciation:
$1,774,800
Additional Cash flow(Year 1):
$656,676
Asset Classification Results:
MACRS Assets Life | Cost Segregation Allocation | Original Allocation | After Cost Segregation |
5 | 21% | - | $1,285,200 |
7 | - | - | - |
15 | 8% | - | $489,600 |
39 | 71% | $6,120,000 | $4,345,200 |
5-Year Assets (21% of Total)
Amount Allocated: $1,285,200
Description: Assets directly tied to the property’s operations, including office furniture, carpeting, lighting fixtures, and other non-structural components.
Depreciation Rate: Accelerated 5-year schedule, with potential for bonus depreciation.
Bonus Depreciation: Assuming bonus depreciation is available, the owner could deduct 100% of these costs in Year 1.
15-Year Assets (8% of Total)
Amount Allocated: $489,600
Description: Land improvements, such as outdoor lighting, sidewalks, parking areas, and landscaping.
Depreciation Rate: Accelerated 15-year schedule with potential eligibility for bonus depreciation.
Bonus Depreciation: The owner could take a 100% deduction on these assets in the first year if bonus depreciation applies.
Remaining 39-Year Assets (71% of Total)
Amount Allocated: $4,345,200
Description: Includes the building’s primary structural components, core systems (HVAC, roofing, walls).
Depreciation Rate: Standard 39-year schedule without accelerated benefits.
Federal Tax Savings: At a 37% tax rate, the investor could yield approximately $656,676 in tax savings for Year 1 alone.
Cash Flow Benefit: The tax savings provide increased cash flow by reducing tax liability, enabling reinvestment opportunities for the owner.
Summary
Through cost segregation, the property owner unlocked accelerated depreciation on 29% of the property’s basis. This strategic approach provides substantial tax savings, increases cash flow, and positions the owner for further reinvestment in the property.
Our team specializes in simplifying office building cost segregation studies, ensuring you maximize your depreciation benefits and retain more capital for growth. Don’t let potential savings slip away! Trust United Tax Advisors to manage the details while you focus on scaling your business.
Contact United Tax Advisors today! Increase cash flow and elevate your investments.