In the intricate world of distribution centers, the varied spectrum of specialized systems and land improvements stands as an underutilized avenue for financial betterment. From state-of-the-art conveyor belts to expansive paved areas for logistical operations, each asset within a distribution center carries its own depreciation timeline.
Cost segregation provides distribution center owners with an essential financial tactic to maximize tax advantages and improve cash flow, facilitating ongoing investment in operational efficiency and technological advancements.
Distribution centers are the backbone of supply chains, ranging from modest warehouses to sprawling facilities that encompass hundreds of thousands of square feet. These centers, which are scattered across the country, come with long standard recovery periods for tax depreciation: 39 years for buildings, 15 years for land improvements, and 5 or 7 years for personal property.
However, the game changes when you apply Cost Segregation studies to these properties. Let’s delve into the reasons why distribution centers present unique opportunities for accelerating depreciation and, consequently, tax savings.
The sheer size of some distribution centers often makes them good candidates for Cost Segregation. Even with limited personal property available for reclassification, the large scale of such facilities can mean that even small percentages in accelerated depreciation translate into substantial dollar amounts.
Cold storage or other specialized distribution centers usually house more personal property than the typical facilities. For instance, these could have specialized refrigeration systems, battery charging stations for forklifts, and more, which are all excellent for reclassification into shorter depreciable lives.
Standard distribution centers offer a variety of assets that are typically reclassified to shorter depreciation lives. This includes:
Land improvements such as extensive paving, fencing with motorized gates or guard stations, site lighting, rail spurs, stormwater drainage improvements, and fuel stations offer another layer of reclassification opportunity with a 15-year tax life.
Typically, one can accelerate the depreciation on 5% – 35% of the capitalized costs, depending on the type of distribution business, the specific building and personal property systems employed, and the extent of the site improvements.
In summary, distribution centers present a compelling case for Cost Segregation studies. Given the nuances in their construction, the scale of the operation, and the variety of assets involved, these facilities offer ample opportunities for property owners to improve their cash flow through accelerated depreciation.
Cost segregation is a strategic approach for distribution center owners looking to optimize their tax benefits and improve their bottom line. By appropriately leveraging this strategy, property owners can significantly enhance their cash flow, ensuring they have the resources to maintain, upgrade, or expand their properties, ultimately maximizing their return on investment. Before embarking on a cost segregation study, it’s advisable to consult with professionals who have experience in both the real estate and tax sectors to ensure compliance and optimization.
Combined Federal and State R&D tax Credit of over $130,000.
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