$500,000 in Cool Tax Benefits

Madison SPECS' Cost Segregation team recently went the extra distance for a client, and found a half million dollars worth of net tax benefits.

Where? In the company's refrigerated cooling unit!

THE SITUATION:

Madison SPECS was recently asked to conduct an in-depth Cost Segregation study of a $3.4 million produce facility in a town in Pennsylvania. The purpose of the study was to identify assets that could be depreciated on an accelerated basis. The focus was the company's 35,000 sf processing cooler used to maintain fruits and vegetables at peak freshness. Eli Loebenberg, CEO of Madison SPECS, spent many weeks working with the facility owner and management to design a plan of action.

Generate Tax Savings

The primary challenge of this assignment was to obtain accurate costs for such a specialized facility. To maintain a constant 35 degrees in the main processing area, the contractor had made a number of significant changes. He installed specialized plumbing, insulated wall packs, wash-down pit drainage, and special refrigeration equipment.

THE SOLUTION:

Madison's Mario Bertinelli, an engineer with more than 20 years experience in Cost Segregation analysis, began his study with a thorough review of the facility's site survey, blueprints, and cost records. He then arranged a site tour to personally examine the facility.

"A good site visit can make a tremendous difference in a Cost Seg study," Bertinelli says. " This is where an experienced engineer can spot any changes made to the facility and discover a gold mine of assets that qualify for accelerated depreciation."

"Yes, it was cold in that cooler," recalls Bertinelli, "but that only served to spark another line of thinking about the project. Working closely with the plant manager and the general contractor was a great help as well. This personal interaction helped me identify assets that might not have been clear if I just studied the site survey and blueprints back in the office. We wanted to find the maximum benefits for our clients, and being on site allowed a trained eye to put into perspective all the information from the site survey, blueprints, and other pertinent documents. There are many assets that we find which are unique to a specific business, and that qualify for accelerated depreciation. That's how we go the extra distance with our Cost Segregation studies."

Using Bertinelli's extensive field notes and photographs, Madison's in-office staff of cost and tax experts then prepared a complete Cost Segregation report, following the IRS's Audit Techniques Guide for Cost Segregation Studies.

THE RESULTS:

Madison SPECS' analysis of the wholesale facility's non-structural components resulted in accelerated depreciation deductions with a net tax benefit of more than $544,000 over the first 6 years.

• $1.8 million reclassified from 39-year to 7-year MACRS (Modified Accelerated Cost Recovery System) property
• $108,000 reclassified to 15 years
• $127,000 in tax benefits for the first year
• $544,000 net tax benefits over the next 6 years

Reduced tax liability and increased cash flow...
Now that's cool!