Warehouse Cost Segregation Case Study   

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    • Jan 24, 2025
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Maximize Your Warehouse or Industrial Building’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.

Warehouse or Industrial
While warehouses may not have as many visible assets compared to other sectors, they can still benefit from cost segregation, especially if they house manufacturing or distribution operations. By identifying and classifying components such as specialized equipment, racking systems, and distinct building features, owners can maximize their tax benefits and improve the financial performance of their industrial investments. 

Practical Example

The following case study highlights the benefits of accelerated depreciation, demonstrating how similar advantages can be realized for warehouses with specialized infrastructure and operational systems. By optimizing the depreciation life of assets like shelving, loading docks, and HVAC systems for tax efficiency, warehouse owners can reduce taxable income, improve cash flow, and enhance the overall financial performance of the property.

Building information

○ Building Type 🡪 Warehouse or Industrial
○ Property Type: 🡪 Commercial
○ Building Size: 🡪 639,595 SF
○ Study Scope: 🡪 New Build
○ Condition: 🡪 New
○ Filling Year: 🡪 2023
○ Date Placed in Service: 🡪 2018
○ 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: 🡪 $7,193,284

○ RNPV Over Remaining Life of Property: 🡪 $2,161,743

○ Net Present Value (NPV) Over 10 Years: 🡪 $2,248,612

Building Allocation After Study

  • forklift
    5 Year Property

    Depreciable Basis: $686,210 at 4%

  • forklift
    7 Year Property

    Depreciable Basis: $561,444 at 3%

  • forklift
    15 Year Property

    Depreciable Basis: $2,151,873 at 13%

  • forklift
    39 Year Property

    Depreciable Basis: $12,674,073 at 79%

  • currency_exchange
    Total

    Depreciable Basis: $16,073,600 at 100%

Sales Tax Exemptions

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