Cost Segregation Case Study – Indoor Growing Facility

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    • Jan 13, 2025
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Maximize Your Indoor Growing Facility 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.

Indoor Growing Facility
For indoor growing facilities, this approach can be especially beneficial. Much like other specialized operations, indoor growing facilities often have unique and intricate components, such as specialized lighting systems, HVAC, irrigation systems, and custom equipment, all of which qualify for accelerated depreciation. These elements can be depreciated over much shorter timeframes than the building’s general structure, leading to a substantial reduction in tax burdens. By taking full advantage of cost segregation, owners of indoor growing facilities can dramatically improve cash flow and reinvest savings into expanding their business or upgrading equipment. Ultimately, this allows for greater operational efficiency and a competitive edge in the growing industry. With the right strategy, an indoor growing facility can experience significant financial growth through careful tax planning and cost segregation techniques.

Practical Example

This case study highlights the benefits of accelerated depreciation and demonstrates how similar advantages can be realized for indoor growing facilities with complex infrastructure and specialized systems. By utilizing this approach, these facilities can optimize their depreciation schedule, improving tax efficiency.

Building information

○ Building Type 🡪 Indoor Growing Facility
○ Property Type: 🡪 Commercial
○ Building Size: 🡪 6,000 SF
○ Study Scope: 🡪 Acquisition
○ Condition: 🡪 New
○ Filling Year: 🡪 2023
○ Date Placed in Service: 🡪 2018
○ Purchase Price less Land or Total Construction Cost: 🡪 $900,000
○ Tax Rate: 🡪 30%
○ Return on Investment Factor: 🡪 8%

Summary of Benefits

○ 25% Additional Tax Deductions in First Year: 🡪 $317,781

○ RNPV Over Remaining Life of Property: 🡪 $86,870

○ Net Present Value (NPV) Over 10 Years: 🡪 $93,221

Building Allocation After Study

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    5 Year Property

    Depreciable Basis: $67,500 at 0%

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    7 Year Property

    Depreciable Basis: $22,500 at 0%

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    15 Year Property

    Depreciable Basis: $70,605 at 0%

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    39 Year Property

    Depreciable Basis: $739,395 at 1%

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    Total

    Depreciable Basis: $90,000,000 at 100%

Sales Tax Exemptions

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