Property Overview
This case study features an Assisted Living Facility acquired in July 2023 for $7,160,590 (excluding land). The property spans, a 32,368-square-foot building. The cost segregation study was applied to the 2023 tax year, utilizing a 37% tax rate and an 8% present value rate of return.
With 80% bonus depreciation, the property owner was able to accelerate tax deductions significantly, enhancing cash flow and overall tax efficiency. The study reclassified various property components into shorter depreciation categories, maximizing the financial benefits.
| Property Type | Assisted Living Facility |
| Purchase price(less land) | $7,160,590 |
| Building sqft | 32,368 |
| Entire site sqft | N/A |
| Date acquired | July 2023 |
| Tax year study applied | 2023 |
| Tax rate | 37% |
| Present value rate of return | 8.0% |
| Bonus depreciation | 80% |
Building Allocation After Study
Cost Segregation Study Benefits
The cost segregation study found assets that qualified for faster depreciation through 5- and 15-year property classifications. This led to big tax savings of $667,552 in the first year, thanks to 80% bonus depreciation. The study’s impact goes beyond just the first year, with tax benefits worth $574,966 over 10 years. When reinvested, these savings could grow to more than $3.5 million over time, showing just how valuable cost segregation can be for assisted living facility owners.
Financial Benefits Achieved
| Tax Savings Benefit in First Year | $ 667,552 |
| NPV Over 10-Years | $574,966 |
| NFP Over Remaining Life of Property | $441,652 |
| Future Value of Invested Savings | $3,527,944 |
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Frequently Asked Questions
What is the benefit of a Cost Segregation Study?
What is the benefit of a cost segregation study?
A Cost Segregation study reduces a building owner’s income taxes up to $100,000 for every $1 mill in building costs. The tax savings are anywhere from 3-10% of the building cost.
What is a cost segregation study?
What is a cost segregation study?
A cost segregation study is an engineering-based analysis that reclassifies commercial real estate components and improvements between real and personal property. This reclassification accelerates the depreciable lives from 27.5- or 39-years to 5-, 7-, or 15-years.
What real estate components can typically be accelerated through a cost segregation study?
What real estate components can typically be accelerated through a cost segregation study?
A cost segregation study can typically accelerate depreciation on many building components, including:
- Electrical installations (e.g., dedicated computer power, special lighting)
- Plumbing systems (e.g., kitchen plumbing, bathroom fixtures)
- HVAC components
- Flooring (e.g., carpet, vinyl, tile)
- Window treatments
- Cabinetry and countertops
- Decorative finishes and millwork
- Security systems
- Fire protection systems
- Parking lot paving and lighting
- Landscaping and site improvements
- Certain building exterior components
Does my property qualify for a cost segregation study?
Does my property qualify for a cost segregation study?
Your property likely qualifies if:
- It’s a commercial building or building improvements with a remaining depreciable basis
- The building or improvement cost basis is at least $200,000
- You anticipate holding the property for at least three years
When should a cost segregation study be done?
When should a cost segregation study be done?
A study can be completed in the year the building or improvements are placed in service. However, it can also be done on properties acquired or constructed since 1986 without amending prior years’ tax returns.
How long does a cost segregation study take?
How long does a cost segregation study take?
A cost segregation study typically takes approximately three to six weeks from the time we receive all the appropriate documentation.
What information is needed to complete a cost segregation study?
What information is needed to complete a cost segregation study?
Generally, we request:
- A current tax depreciation schedule
- Building cost information
- Blueprints or architectural drawings and renovation plans, if applicable
- Access to the property for an on-site inspection and walk-through
How much can I save with a cost segregation study?
Savings vary, but within the first five years of building ownership, owners could save up to $100,000 for every $1 million in building costs.
Will a cost segregation study trigger an audit?
No, a properly conducted cost segregation study has never triggered an audit. In fact, if you are audited for any reason and the study comes into question, CSSI will defend the audit at no cost.
Can a cost segregation study be done on buildings not yet constructed?
While a full study can’t be done on unconstructed buildings, CSSI can provide estimates on tax savings from your construction budgets. A full study will be delivered when construction is complete.