Specialized Boat Manufacturing Facility Cost Segregation Study

Approach & Results

Client Profile
A CPA firm contacted McGuire Sponsel to conduct a cost segregation study for a company specializing in ship and boat building machinery and equipment, particularly pontoon boats, in Malvern, Arkansas. They acquired a $3.5 million manufacturing facility to expand their production capabilities in this niche market.

Process
Our Fixed Assets team was tasked with conducting a retroactive cost segregation study on this recently purchased pontoon boat manufacturing facility. The engagement presented a unique challenge due to its retroactive nature, requiring a specialized approach to maximize tax benefits for a property already in service.

Our team carried out a comprehensive on-site inspection on August 17, 2023. This detailed evaluation, combined with an in-depth review of purchase documents and facility specifications, allowed our experts to identify numerous opportunities for strategic asset reclassification tailored to the specific needs of boat manufacturing operations.

Study Results
The cost segregation study was completed on September 8, 2023. Our team’s efficient execution of all study components, completed within just three weeks of the site visit, allowed our client to meet their critical September 15th tax extension deadline.

Through meticulous analysis, our team reclassified 16% of the facility’s assets from standard 39-year property into more favorable 15-, 7-, and 5-year tax life categories. This reclassification encompassed assets totaling approximately $550,000, all of which qualified for bonus depreciation.

Given the retroactive nature of this study, our team also performed a 481(a) calculation to correct improper depreciation methods from previous tax years. This additional step allowed the client to recognize the effects in the current tax year without the need to amend prior returns. As part of our comprehensive service, we provided a draft Form 3115 and necessary attachments to facilitate this adjustment.

The present value of increased cash flows as a result of the study was $190,424. The study produced an increased first-year cash flow of $196,976 that exceeded projections by $10,000. Impressively, the client’s return on investment was 24 to 1, demonstrating the exceptional value of this cost segregation analysis.