DISTRIBUTING COMPANY (WAREHOUSE)
A CASE STUDY ON COST SEGREGATION AND EPACT ENERGY TAX DEDUCTIONS
For this case study, Source Advisors performed a Cost Segregation and EPAct 179D study on XYZ Distributing Company. The property is a 535,145 square foot warehouse distribution center. Constructed in 2018, the complex is made up of a climate-controlled storage warehouse, office area, truck wash area, loading docks, trailer storage areas, and utility infrastructure improvements.
For the purposes of this case study, the EPAct 179D deduction is only applicable to the warehouse area, while the cost segregation study includes the building and all of the land improvements.
To properly complete the cost segregation study, Source Advisors performed a site visit and interviewed property owners, on-site personnel and other parties familiar with the property. Documentation provided by the client was also reviewed. With a depreciable basis of $71,794,717, Source Advisors was able to reclassify 21.6% of assets into 5-year personal property and 16.8% of assets into 15-year land improvements with a total of $27,582,162 accelerated.
The EPAct 179D study was conducted to determine the applicable federal tax deductions pursuant to the Energy Policy Act of 2005 and subsequent extensions. This act allows for IRC Section 179D Partial Tax Deductions for qualifying properties of up to $0.60 per square foot, based on the reduction in Lighting Power Density (LPD) against ASHRAE 90.1-2007 Minimum Requirements for building types. To qualify for the full $0.60/sf deduction, the actual LPD must be reduced by 50% or more (special rules for warehouses) against the ASHRAE allowed LPD level set at 0.80 w/sf. With an actual building LPD of 0.27 w/sf or 66% reduction, XYZ distributing company qualified for a deduction of $0.60/sf or $302,811.