Example of Cost Seg Study on Self Storage Facility

[Julio Gonzalez]

Without a Cost Segregation Study, this $8.2 Million Self Storage in Stuart, Florida purchased in 2021 would have generated first-year depreciation of approximately $210,200. By applying a Cost Segregation Study, the property investors accelerated depreciation for the first year to approximately $2 Million. Cost segregation is one of the biggest tax benefits for self storage facility owners. The facilities typically have a significant amount of assets that are eligible for shorter useful lives rather than depreciating them over 39 years. These items can be depreciated over 15 years: storm drainage, lighting, curbing, retaining walls, paving, fencing, etc. These items can be depreciated over 5 or 7 years: Fixtures, furniture, controlled access gates, alarm systems, computerized systems, security systems, movable partitions, etc.

This accelerated depreciation strategy allows the property investors to immediately reduce their tax liability and in turn, increase their bottom line by offsetting income. This detailed engineering-based Cost Segregation Study will also be used to help maximize improvements and renovation in addition to being used for potential savings with insurance premium costs and property tax appeals.

A Cost Segregation study is an IRS approved federal income tax tool that increases near term cash flow by utilizing shorter recovery periods for depreciation to accelerate return on investment. For newly constructed, purchased or renovated properties and also retroactive generally over the last 10 years, building components are properly classified into individual units of property and accurate recovery periods for computing depreciation deductions. The study identifies with forensic engineering detail the immediate Bonus Depreciation 5, 7 and 15-year personal property class lives qualifying portions of a building that are normally buried in 27.5 year residential or 39 year commercial categories.

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