Warehouse Tax Strategy Case Study
The client acquired a large suburban property in the late 1990s. He converted the space into an auto parts warehouse. Over the next two decades, he installed a great deal of specialty equipment. This included custom-built mezzanines. The client also installed several office fit-outs. Recently, the client decided to convert the warehouse space into a fitness center. Thus, requiring additional renovations and the disposal of a significant amount of equipment. Changing the nature of the space meant that the owner’s tax needs would change, as well. The client approached Capstan for tax strategies that would best enhance the property’s new direction.
After a full assessment, a three-pronged approach allowed the client to maximize tax savings. First, Capstan recommended a cost segregation study to generate immediate tax savings. Next, the Capstan team suggested a Unit of Property Survey to log assets by category and lay the foundation for long-term savings. Finally, the team recommended that the client take advantage of the new Tangible Property Regulations through a ReCap study. The ReCap study would identify assets that had initially been capitalized but would be expense eligible under the recently passed regulations. The Capstan team expected to find assets of this nature in the property’s office spaces.
The client was pleased with this approach. Additionally, he was intrigued by the fact that the large amount of specialty equipment removal. Capstan leveraged it for significant tax savings. Warehouse Tax Strategies were strategic and a huge energy savings as well.
The scope of this project although daunting, encompassed many “moving parts” over multiple dates of service. The Capstan engineer painstakingly recreated accurate representations of the property through the years. He used depreciation schedules, demolition drawings, old photographs, and extensive owner interviews to piece together the complete evolution of the property. The attention to detail required was immense—and so were the rewards.
During the cost segregation study, the engineer was able to move 14% of the depreciable basis into a five-year property schedule. This resulted in an immediate savings of nearly $500,000. Furthermore, the engineer identified and was able to expense more than $150,000 of improvements to office fit-outs that had initially been capitalized. Most significantly, however, was the partial asset disposition. 11% of the depreciable basis was eligible for immediate write-off. Thus, representing more than $920,000 of ghost assets.
Capstan issues the client “The Capstan Warranty,” which provides audit support up to the field agent level at no additional cost in the event of an audit.