Cost Segregation Case Study – Distribution Center

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    • Jan 22, 2025
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Maximize Your Distribution Centers 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.

Distribution Center
For distribution centers, this strategy can be particularly advantageous, as it allows for the accelerated depreciation of specialized equipment such as cold storage systems, power infrastructure, HVAC, and plumbing. The following case study illustrates the benefits of accelerated depreciation, demonstrating how similar advantages can be realized for commercial properties like distribution centers. 

Practical Example

The following case study highlights the benefits of accelerated depreciation, demonstrating how similar advantages can be realized for distribution centers with complex infrastructure and logistics-focused systems. By optimizing the depreciation life of the distribution center and its assets for tax efficiency, these strategies can help reduce taxable income, enhance cash flow, and improve overall financial performance for distribution center owners and operators.

Building information

○ Building Type 🡪 Distribution Center
○ Property Type: 🡪 Commercial
○ Building Size: 🡪 51,760 SF
○ Study Scope: 🡪 Acquisition
○ Condition: 🡪 New
○ Filling Year: 🡪 2023
○ Date Placed in Service: 🡪 2022
○ Purchase Price less Land or Total Construction Cost: 🡪 $11,650,000
○ Tax Rate: 🡪 30%
○ Return on Investment Factor: 🡪 8%

Summary of Benefits

○ 25% Additional Tax Deductions in First Year: 🡪 $6,360,118

○ RNPV Over Remaining Life of Property: 🡪 $1,799,814

○ Net Present Value (NPV) Over 10 Years: 🡪 $1,702,367

Building Allocation After Study

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    5 Year Property

    Depreciable Basis: $678,216 at %6

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    7 Year Property

    Depreciable Basis: $226,072 at 2%

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    15 Year Property

    Depreciable Basis: $1,559,657 at 13%

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    39 Year Property

    Depreciable Basis: $9,186,053 at 79%

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    Total

    Depreciable Basis: $11,650,000 at 100%

Sales Tax Exemptions

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