Pittsburgh Mixed-Use Apartment and Commercial Complex Cost Segregation

Approach & Results

Client Profile
A CPA firm engaged McGuire Sponsel to carry out a cost segregation study for a client who had recently acquired a mixed-use apartment and commercial complex in Pittsburgh, Pennsylvania, for approximately $66 million. They sought to optimize their tax strategy for this significant real estate investment.

Process
The process began after the building was acquired on January 10, 2023, with the engagement letter signed on August 14, 2023. Our Fixed Assets team conducted a thorough site visit on September 26, 2023, meticulously examining the property and reviewing all relevant documentation. This comprehensive approach allowed for precise identification and reclassification of assets into shorter depreciation categories.

Study Results
The study was finalized on January 15, 2024. Despite the complexity of the mixed-use property, our team successfully reclassified over 14% of the depreciable basis from 39-year property into 5- and 15-year property. These personal property assets, all eligible for bonus depreciation, accounted for over $8.7 million of the total project cost. As a result of this reclassification, the study yielded an increased first-year cash flow of over $2.6 million for the client, surpassing the original projection by more than $1.6 million. Furthermore, the net present value of cash flows over the life of the investment exceeded $1.9 million.