Minnesota Apartment Complex Cost Segregation Study

Approach & Results

Client Profile
A CPA firm contacted McGuire Sponsel to conduct a cost segregation study for their client, who acquired and renovated an apartment complex in Coon Rapids, Minnesota, with a total investment of approximately $10 million.

Process
The project timeline spanned several years, with the initial purchase occurring on October 31, 2019, followed by two phases of renovations completed in 2021 and 2022, respectively.

Our Fixed Assets team initiated the study process with an engagement letter dated November 10, 2022. A comprehensive site visit was conducted on November 22, 2022, during which the property was meticulously examined and all relevant documentation was thoroughly reviewed. This detailed approach enabled the precise identification and reclassification of assets into more favorable depreciation categories.

Study Results
The cost segregation study was finalized on January 20, 2023, and our team successfully reclassified over 31% of the depreciable basis from 39-year property into 5- and 15-year property categories. These personal property assets, all eligible for bonus depreciation, amounted to over $3.2 million.

As a result of this strategic reclassification, the study generated an increased first-year cash flow exceeding $1 million for the client, surpassing the initial projections. Furthermore, the net present value of cash flows over the investment’s lifespan surpassed $667,000.