Texas Food Manufacturing Facility Cost Segregation Study

Approach & Results

Client Profile
A CPA firm engaged McGuire Sponsel to carry out a cost segregation study for a food manufacturing company specializing in pecans that recently initiated a two-phase construction project for a new facility in El Paso, Texas. The total investment amounted to $17 million, with Phase 1 comprising a $6 million bulk storage building and Phase 2 consisting of an $11 million office and processing building.

Process
Our Fixed Assets team was engaged early in the construction process to conduct a cost segregation study on this newly constructed food manufacturing complex. This proactive approach allowed for strategic timing of the site visit to encompass both phases in a single trip, optimizing efficiency and reducing travel costs.
Our team worked closely with the client’s accounting department throughout the construction, meticulously tracking incoming project costs as they accrued. A comprehensive on-site inspection was conducted, accompanied by a detailed review of blueprints for both phases of the project.

Study Results
Our cost segregation study delivered exceptional outcomes for the client across both construction phases. Our Fixed Assets teamsuccessfully reclassified 34% 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 $6 million of the overall project cost.

For Phase 1, completed in 2022, the study generated an increased first-year cash flow of $1,231,333 which exceeded projections by $800,000, resulting in an impressive 195-to-1 return on investment. The net present value of increased cash flow for Phase 1 was $1,190,375.

Phase 2, finalized in 2023, generated an increased first-year cash flow of $759,972, surpassing first-year cash flow projections by $2,000. This yielded a substantial 101-to-1 return on investment. The net present value of increased cash flow for Phase 2 was $734,692.