Summary
In this case study, we delve into the application of Cost Segregation and EPAct 179D to XYZ Distributing Company's warehouse facility. The warehouse spans 535,145 square feet and was established in 2018. Comprising various sections including storage, office, truck wash, loading docks, and utility enhancements, the facility underwent a comprehensive analysis.
The EPAct 179D deduction pertains exclusively to the warehouse area, whereas the scope of the cost segregation study encompasses the entire structure along with land improvements.
To facilitate an accurate cost segregation study, GOAT.tax conducted on-site visits, engaged property proprietors, collaborated with on-site personnel, and consulted individuals familiar with the property. Concurrently, the documentation furnished by the client was meticulously examined. The outcome of this meticulous process was the reclassification of 21.6% of assets into 5-year personal property and 16.8% of assets into 15-year land improvements, resulting in a total accelerated amount of $27,582,162. The depreciable basis stood at $71,794,717.
The EPAct 179D study centered around identifying eligible federal tax deductions in accordance with the Energy Policy Act of 2005 and its subsequent extensions. This legislation introduces provisions for IRC Section 179D Partial Tax Deductions, offering potential deductions of up to $0.60 per square foot for qualifying properties. The eligibility criteria hinge on the reduction in Lighting Power Density (LPD) as compared to ASHRAE 90.1-2007 Minimum Requirements for different building types. To qualify for the maximum $0.60/sf deduction, the actual LPD reduction must reach 50% or more (with special rules for warehouses) compared to the ASHRAE-sanctioned LPD level of 0.80 w/sf. Notably, with a substantial 66% reduction and an actual building LPD of 0.27 w/sf, translating to $302,811, XYZ Distributing Company emerged as a qualified recipient of the $0.60/sf deduction.
Outcome
The meticulous efforts in cost segregation and adherence to EPAct 179D energy deductions paid off handsomely for XYZ Distributing Company. The reclassification of assets and substantial energy efficiency improvements allowed the company to unlock substantial financial benefits. By judiciously navigating the realm of tax regulations and energy efficiency incentives, XYZ managed to optimize its tax position while also contributing to sustainability objectives.
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