Cost Segregation Case Study – Cold Storage

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    • Jan 23, 2025
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Maximize Your Cold Storage’s Tax Strategy

What is Cost Segregation
Cost segregation is an effective tax planning strategy that helps businesses and individuals involved in constructing, purchasing, expanding, or renovating real estate reduce their tax liabilities by accelerating depreciation deductions, which allows for the deferral of both federal and state income taxes.

Cold Storage
Cold storage facilities, with their specialized requirements such as high-power refrigeration, HVAC systems, and plumbing infrastructure, are particularly well-suited for cost segregation. These unique components can be depreciated over shorter periods, allowing owners to maximize tax savings and optimize the financial benefits of their investments. This strategic approach helps cold storage facility owners leverage substantial tax advantages, improving both short-term cash flow and long-term returns. 

Practical Example

The following case study highlights the benefits of accelerated depreciation, demonstrating how similar advantages can be realized for cold storage facilities with specialized infrastructure and temperature-controlled systems. By optimizing the depreciation life of the cold storage facility and its assets for tax efficiency, these strategies can help reduce taxable income, increase cash flow, and improve overall financial performance for cold storage facility owners and operators.

Building information

○ Building Type 🡪 Cold Storage
○ Property Type: 🡪 Commercial
○ Building Size: 🡪 210,000 SF
○ Study Scope: 🡪 Acquisition
○ Condition: 🡪 New
○ Filling Year: 🡪 2023
○ Date Placed in Service: 🡪 2018
○ Purchase Price less Land or Total Construction Cost: 🡪 $24,950,000
○ Tax Rate: 🡪 30%
○ Return on Investment Factor: 🡪 8%

Summary of Benefits

○ 25% Additional Tax Deductions in First Year: 🡪 $11,926,643

○ RNPV Over Remaining Life of Property: 🡪 $3,370,730

○ Net Present Value (NPV) Over 10 Years: 🡪 $3,526,263

Building Allocation After Study

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    5 Year Property

    Depreciable Basis: $1,065,159 at 4%

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    7 Year Property

    Depreciable Basis: $871,494 at 3%

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    15 Year Property

    Depreciable Basis: $1,996,000 at 8%

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    39 Year Property

    Depreciable Basis: $21,017,348 at 84%

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    Total

    Depreciable Basis: $24,950,000 at 100%

Sales Tax Exemptions

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