Unlocking Hidden Savings: A Cost Segregation Case Study on a Self-Storage Facility
Cost Seg Advisory - Elevating Your Asset's Profitability
At Cost Seg Advisory, we specialize in maximizing property owners' tax savings through strategic cost segregation studies. One of our most compelling case studies involves a self-storage facility, where our expertise significantly enhanced the owner's depreciation deductions and cash flow. Here’s a detailed look at this success story.
Background: The Self-Storage Facility
Our client, a self-storage facility owner, approached us to explore tax-saving opportunities. The facility, valued at $5 million, was recently acquired and primarily depreciated over 39 years.
The Process: Conducting a Cost Segregation Study
We performed a detailed cost segregation study, dissecting the property's construction costs and classifying them into different categories for tax purposes.
Findings and Results
1. Accelerated Depreciation
Shorter Depreciable Life: Significant portions of the property's cost were reclassified from 39-year property to 5, 7, and 15-year property.
Increased Depreciation Deductions: This reclassification allowed for accelerated depreciation deductions, significantly reducing taxable income in the initial years.
2. Enhanced Cash Flow
Immediate Cash Flow Boost: The accelerated deductions resulted in immediate tax savings, enhancing the owner’s cash flow.
Reinvestment Opportunities: The additional cash flow provided the owner with opportunities to reinvest in the business or pursue other investment ventures.
Quantifying the Benefits
Year 1 Additional Depreciation: Approximately $750,000
5-Year Total Additional Depreciation: Over $1.2 million
Net Present Value of Savings: Approximately $400,000 over the life of the property
Client's Response
The client was astounded by the financial impact. These savings significantly exceeded their expectations and transformed their strategy for future property investments.
Why Cost Segregation Matters for Self-Storage Facilities
Maximize Tax Savings: Self-storage facilities, with their unique blend of property components, offer substantial opportunities for accelerated depreciation.
Optimize Asset Performance: Cost segregation turns a passive approach to depreciation into an active tool for enhancing asset performance.
Strategic Financial Planning: These studies provide insights that can inform broader financial and business planning strategies.
Conclusion
This case study exemplifies the transformative impact a cost segregation study can have on a self-storage facility’s profitability. At Cost Seg Advisory, we are dedicated to uncovering these hidden savings for our clients, ensuring their investments work smarter and more efficiently.
Interested in exploring what cost segregation can do for your property? Contact Cost Seg Advisory today.
