Self-Storage Cost Segregation Study
In this case study, United Tax Advisors partnered with a self-storage facility owner to reduce tax liabilities and enhance cash flow through an in-depth cost segregation analysis. Starting with a basis of $7,265,000, the objective was to accelerate depreciation on qualifying assets, thereby enabling immediate tax savings and a boost in cash flow. By reclassifying portions of the property into shorter depreciation schedules, United Tax Advisors identified significant first-year deduction opportunities that provided substantial financial relief. This strategic approach demonstrates how commercial property owners can accelerate depreciation to increase cash flow for reinvestment.
Self-Storage Facility
Total Purchase Price: $7,265,000
In Service Date: April 18, 2022
Goal: Accelerate depreciation to maximize tax savings
Total Accelerated Depreciation:
$1,816,250
Additional Cashflow(Year 1):
$635,688
Asset Classification Results:
MACRS Assets Life | Cost Segregation Allocation | Original Allocation | After Cost Segregation |
5 | 15% | - | $1,089,750 |
7 | - | - | - |
15 | 10% | - | $726,500 |
39 | 75% | $7,265,000 | $5,448,750 |
5-Year Assets (15% of Total)
Amount Allocated: $1,089,750
Description: These are assets essential to property operation, such as security systems, exterior lighting, and specific equipment.
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 (10% of Total)
Amount Allocated: $726,500
Description: This includes land improvements, such as paving, landscaping, outdoor lighting, and fencing.
Depreciation Rate: 15-year accelerated schedule with potential eligibility for bonus depreciation.
Bonus Depreciation: These assets may qualify for a full deduction in the first year if bonus depreciation is applied.
Remaining 39-Year Assets (75% of Total)
Amount Allocated: $5,448,750
Description: This category comprises the building’s structural components and systems, including walls, roofing, and HVAC.
Depreciation Rate: Standard 39-year schedule with no accelerated benefits.
Federal Tax Savings: At an assumed 35% tax rate, this accelerated depreciation could yield approximately $635,688 in tax savings for Year 1 alone.
Cash Flow Benefit: The increased cash flow due to reduced tax liability allows the owner to reinvest in future property improvements or business growth.
Summary
This cost segregation study enabled the property owner to accelerate depreciation on 25% of the self-storage facility’s purchase price. By reclassifying specific components into shorter depreciation categories, the study significantly enhanced cash flow, lowered tax obligations, and provided a substantial financial advantage for reinvestment. This strategic approach highlights the impact of proactive tax planning on maximizing savings and improving cash flow.
Take the Next Step with United Tax Advisors
Our specialists simplify the cost segregation process, ensuring your property’s depreciation benefits are fully optimized. Contact United Tax Advisors and watch your cash flow grow.