In 2024, O’Connor performed a cost segregation study for a retail property owner in Oklahoma where the end result identified almost $700K in accelerated depreciation by leveraging 100% bonus depreciation. O’Connor has performed the Cost Approach(exclusive of land valuation and Highest and Best Use Analysis) for the short-life depreciation components, as well as providing a breakdown of the 27.5-year or 39-year real property building components.
The depreciable basis is the portion of a property’s purchase price or construction cost that is eligible for depreciation under the tax code. It represents the amount that can be allocated and written off as a tax deduction over time based on the property’s useful life.
In our studies, the depreciable basis is broken down into different asset classes with varying terms of useful life. For example, personal property, which in the case of this retail client includes checkout stands, refrigeration equipment, restroom fixtures, employee lockers, as well as a walk-in cooler and freezer. These items have a 5- or 7-year life. Land improvements might have a 15-year life. In this study some elements of the property fitting this description are building sidewalks, a wood fence enclosure with chain-link gates, a storm water retention pond, wood fencing, and a paved parking lot.
The Depreciable basis for the property is $1,665,000. Because the property was purchased in 2022, the assets qualify for 100% bonus depreciation. Had the property been purchased in 2024, according to the phase-out schedule for bonus depreciation, only 60% bonus depreciation would be allowed. Property owners are sure to keep a close eye on changes to legislation that may result from the new government administration.
Utilizing 100% bonus depreciation, first year depreciation in this case study is $696,662.
Short-Life Depreciation Components
| 5 Year Items | 5.17% | $252,559 |
|---|---|---|
| 7 Year Items | 0.25% | $4,236 |
| 15 Year Items | $26.42% | $439,867 |
If you own retail property and are interested in a cost segregation study to reduce your federal income tax burden, O’Connor offers a free price quote to perform your study. Your property analysis will include a step-by-step guide on how to claim your savings and a toll-free hotline to answer your questions. We have completed over 15,000 reports resulting in hundreds of millions of dollars in federal tax savings for our clients. In 2024 alone, O’Connor’s cost segregation team saved clients close to $350 million in federal taxes.