Metal Sprocket Manufacturing Facility Cost Segregation Study

Approach & Results

Client Profile
A CPA firm contacted McGuire Sponsel to conduct a cost segregation study for their client, who recently acquired a manufacturing facility specializing in metal sprockets and other mechanical products in Brewton, Alabama, for approximately $3 million. The client aimed to optimize their tax strategy for this industrial investment.

Process
Our Fixed Assets team was engaged to conduct a cost segregation study on the newly purchased manufacturing complex. The analysis commenced promptly after the acquisition, with a focus on meeting the March 15 tax deadline.

Our team performed a comprehensive site inspection on February 12, 2024, examining ten office and production buildings in detail. To minimize disruption to the client’s operations, the inspection was conducted after business hours, ensuring no interruption to production schedules.

Study Results
The cost segregation study was completed on February 29, 2024. Our team successfully reclassified nearly 20% of the facility’s assets from 39-year property into 5-, 7-, and 15-year property categories. These reclassified assets, all eligible for bonus depreciation, totaled approximately $550,000 of the overall project cost.

The study’s findings exceeded initial projections, increasing the client’s first-year cash flow by an additional $20,000 above expectations. Notably, the client’s return on investment was an impressive 17 to 1 ratio, and the net present value of increased cash flow was $169,196.