A cost segregation study was performed on this auto repair shop in Nevada with a depreciable cost basis of $1,250,000. The property is 2 stories and 15,000 square feet and was constructed in 2005. The repair shop includes 10 service bays to be able to service a variety of cars. The building has a metal exterior finish with large bay windows and a durable brick. It includes high-efficiency HVAC systems, contemporary LED light fixtures and multiple tankless water heaters. Additionally, there is specialized equipment including diagnostic machines and hydraulic lifts.

The use of the accelerated depreciation strategy helps real estate investors to reduce the tax liability immediately which therefore increases their bottom line due to the offsetting of income. An additional benefit of a detailed engineering-based Cost Segregation Study is that it can increase potential insurance premium savings as well as provide support for the property tax appeals process. Additionally, it can help maximize renovations and improvements.

20% of the total depreciable basis was classified as 5-year class life. Assets identified in this study include:

• Appliances: Dishwashers, refrigerators, and ice machines
• Interior Finishes: ceiling fans, flooring and decorative wall treatments
• Furniture and Fixtures: shelving, counters, mirrors and cabinets
• Specialized Equipment: diagnostic machines and hydraulic lifts
• Security and Communication Systems: key card readers, telephone connections and security cameras

30% of the total depreciable basis was classified as 15-year class life. Assets identified in this study include:

• Infrastructure and Site Utilities: signage, site lighting and utility sinks
• Land Improvements: sidewalks, landscaping, fences and parking spaces

50% of the total depreciable basis was classified as 39-year class life. Assets identified in this study include:

• Building Systems: plumbing, HVAC and electrical distribution
• Interior Construction: flooring, drywall partitions and ceilings
• Structural Components: doors, roofing, windows and walls
• Permanent Fixtures: emergency lighting, restroom fixtures and signage

This engineering-based cost segregation study included the following methodology:

• Physical Inspection through a site visit
• Documentation review including architectural plans, accounting records and construction documents
• A cost analysis which utilizes engineering principles in order to allocate costs to their applicable asset classifications
• Calculation of the depreciation schedule using MACRS

As a reminder, bonus depreciation started to phase out in 2023. It’s 100% bonus depreciation for properties placed into service in 2017-2022, 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026 and completely phased out in 2027. However, there are tax code changes every year. In the H.R. 3936, Built in America Act, it was proposed to extend the 100% bonus depreciation until January 1, 2027. This has the potential to be passed later this year.

For additional questions, checkout this article on Cost Segregation FAQs.

Have you had a cost segregation study performed on your commercial property?