Cost Segregation Examples

Did you know cost segregation can be done on various types of building uses? Below are cost segregation examples (a.k.a. a mini case study), from projects we have conducted for real estate investors, CPAs, Financial Advisors and everyone in between.

One wild cost segregation example is cold storage facilities. Random, but it’s true. If you’ve been lucky enough to visit a cold storage facility, you will know that within the facility there is a significant number of walk-in freezers, coolers, garbage rooms, and humidors - typically all of these items that can be depreciated over five years!

From cold storage facilities to hair salons, the next time you doubt the type of building you can complete a cost segregation study on, think again.

These cost segregation examples should give you a better idea of the financial benefits a cost segregation study can produce. Accelerated deductions, more cash upfront, what’s holding you back? Cost segregation isn’t just for office buildings and multi-million dollar homes.

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Example of a non-residential commercial property (supermarket)

An excellent cost segregation example we did on a non-residential commercial property comes from a popular supermarket in Los Angeles, California.

The building was placed in service in 2004, with an original basis of $3,073,763. Improvements were done to the building in 2012, costing $1,156,301. Prior to cost segregation, this building only accumulated $1,257,072 in depreciation deductions. Post cost segregation, the building realized an ADDITIONAL $1,325,898, in depreciation deductions, bringing the total accumulated depreciation to a whopping $2,582,969. Doubling the depreciation!

Examples of items we were able to reclassify include:

  • Wooden Gate
  • Overhead door
  • Exit sign
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Other building uses that are considered non-residential commercial property:

  • Warehouse
  • Department store
  • Auto dealership
  • Bank
  • Restaurant

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Example of a residential rental property (high-rise condo)

Did you know cost segregation can also be done on high-rise condos? We recently did a study on a million dollar high-rise condo in New York City.

The asset (condo) was placed in service in 2016, with an original basis of $1,004,954. Prior to cost segregation, this building accumulated $71,565 in depreciation deductions. Post cost segregation, the building more than doubled its depreciation ($92,025), bringing the total accumulated depreciation to $163,590.

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Examples of items we were able to reclassify include:

  • Sidewalks
  • Granite and/or marble countertops
  • Washer/dryer
  • Refrigerator

Other building uses that are considered residential rental property include:

  • Apartment
  • Duplex/4-plex
  • Row-townhouse
  • Condo
  • Single family residence (that are rented)

Example of property under $500,000 in basis

We conducted an Echo Lite Segregator (ELS) study on a speciality store (water supplier). The ELS is a do-it-yourself cost segregation software solution, specifically for buildings with a basis of less than $500,000. It is an empirical modeling tool, founded on a database of full-blown quality cost segregation studies. Since ELS is not a full-blown cost segregation study, the software is able to predict the re-class of assets.

This ELS study was done on a single family residence. The building was placed in service in 2016, with an original basis of $94,180. Prior to cost segregation, this building accumulated $5,851 in depreciation deductions. Post cost segregation, $9,128 of additional depreciation deductions were added bringing the total accumulated depreciation to $14,979.

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So yes, contrary to the belief, you can model a cost segregation study on a building under $500,000 in basis and determine a relatively accurate prediction without doing a full blown cost segregation study.

As you can see, cost segregation can be done on almost any building type. And with the Tax Cuts and Jobs Act (TCJA) in 2017, cost segregation is saving more taxes than ever before.

Be sure to download the below FREE eBook where we breakdown the IRS Cost Segregation Audit Techniques Guide:

DOWNLOAD: COST SEG SIMPLIFIED EBOOK