Cost Segregation Case Study – Office Space  

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    • Jan 24, 2025
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Maximize Your Office’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.

Office
In office environments where a large portion of the space is dedicated to computer equipment and technology, cost segregation can offer significant benefits. This strategy allows assets like computer systems and servers to be depreciated over a shorter period, typically five years, reducing taxable income in the early years and providing substantial tax savings. By optimizing their tax positions through cost segregation, office owners can maximize financial benefits, improve cash flow, and effectively manage overall tax exposure, ultimately boosting long-term investment returns. 

Practical Example

The following case study highlights the benefits of accelerated depreciation, demonstrating how similar advantages can be realized for office buildings with specialized infrastructure and technology-focused assets. By optimizing the depreciation life of these assets for tax efficiency, office owners can reduce taxable income, improve cash flow, and maximize financial benefits, ultimately enhancing the long-term profitability of the property.

Building information

○ Building Type 🡪 Office
○ Property Type: 🡪 Commercial
○ Building Size: 🡪 32,282 SF
○ Study Scope: 🡪 Acquisition
○ Condition: 🡪 Good
○ Filling Year: 🡪 2023
○ Date Placed in Service: 🡪 2019
○ Purchase Price less Land or Total Construction Cost: 🡪 $16,073,600
○ Tax Rate: 🡪 30%
○ Return on Investment Factor: 🡪 8%

Summary of Benefits

○ 25% Additional Tax Deductions in First Year: 🡪 $40,010,768

○ RNPV Over Remaining Life of Property: 🡪 $11,095,528
○ Net Present Value (NPV) Over 10 Years: 🡪 $11,689,928

Building Allocation After Study

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    5 Year Property

    Depreciable Basis: $1,764,133 at 2%

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    7 Year Property

    Depreciable Basis: $7,056,531 at 8%

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    15 Year Property

    Depreciable Basis: $6,208,716 at 7%

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    39 Year Property

    Depreciable Basis: $74,470,620 at 83%

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    Total

    Depreciable Basis: $89,500,000 at 100%

Sales Tax Exemptions

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