First Year Depreciation of $900,938 and NPV Tax Benefit of $307,852

Acquisition of a Warehouse/Office Building in Utah

Meridian was contracted by the owners of a food distributor to conduct an engineering-based cost segregation study for a recently purchased $2.5 million dollar single story warehouse and office building. The study’s objective comprised identifying property components which could be reclassified to shorter recovery periods to accelerate building depreciation and defer income taxes.

Property Profile

The property is a single story combination warehouse and office building containing approximately 74,911 square feet. The building is a steel-framed structure enclosed with EIFS and metal panels, and insulated glass in metal frames. Land improvements included sidewalks, paved parking lot, flagpole, double swing gate, site signage, underground utilities, and general landscaping with irrigation.

Engineering Process

Our construction engineers conducted an extensive inspection and itemized the improvements located on this purchased property. We reviewed all available construction documentation, and along with the inspection information we isolated various components qualifying for shorter cost recovery period depreciation under the provisions of the Internal Revenue Code and current tax law. Using construction-estimating techniques, each component is assigned a value, which is adjusted for depreciation and reconciled back to the purchase price. Finally, our internal audit team of senior construction engineers and tax specialists reviewed and certified its completeness and accuracy.

Project Results

Due to this engineering-based cost segregation study the client reallocated 35% of the assets to shorter recovery, which generated a first year depreciation amounting to roughly $900,938, and a year-one projected net present value tax benefit of $307,852.