Townhome Apartment Complex Cost Segregation Study

Approach & Results

Client Profile
A CPA firm contacted McGuire Sponsel to conduct a cost segregation study for their client, a real estate developer who recently constructed a state-of-the-art townhome complex. This approximately $8 million investment was designed to meet the growing demand for contemporary, multi-family housing in the area.

Process
Our Fixed Assets team was engaged on January 16, 2024, shortly after the complex was placed in service in 2023, allowing for a comprehensive analysis of the completed project in its entirety. We carried out an on-site evaluation on February 9, 2024. This in-depth inspection, combined with a meticulous review of all construction documentation, enabled our team to identify numerous opportunities for strategic asset reclassification, optimizing the tax benefits for this residential investment.

Study Results
The cost segregation study concluded on March 5, 2024, and our team successfully reclassified over 16% of the depreciable basis from standard 39-year property into more favorable 5- and 15-year categories. This reclassification encompassed personal property assets totaling more than $1.2 million, all of which qualified for bonus depreciation. The study produced an increased first-year cash flow exceeding $360,000, surpassing the initial projections. Furthermore, the net present value of cash flows over the investment’s lifespan was calculated to exceed $220,000.