Case Study: The Successful Results of A Complete Fixed Asset Review

Written by Taz Singh, CPA. Updated Feb 5, 2016.

**This case study is an amalgamation of CTI client success stories – based on real-life outcomes – to showcase a balanced, conservative perspective in the interest of not inflating numbers or empty promises.**

Case_Study_The_Successful_Results_of_A_Complete_Fixed_Asset_Review0ACase_Study_The_Successful_Results_of_A_Complete_Fixed_Asset_Review0ACase_Study_The_Successful_Results_of_A_Complete_Fixed_Asset_Review0A.jpgCompany XYZ, Inc. is a food manufacturing company with four facilities spread throughout California, including its headquarters facility, which is located in Sacramento.

The Problem

Historically, the company had not been in a taxable position. As a result, they typically categorized all new construction, renovation and acquisition fixed asset costs using the straight-line depreciation (39-year) method.

This year, however, the company faces a significant tax liability and is pursuing opportunities for accelerated depreciation deductions.

The Solution

Through CTI’s free Phase I feasibility, we assessed that since 2000, XYZ, Inc. has capitalized approximately $20 million in costs outside of FF&E that were originally grouped into 39-year straight-line depreciation.

CTI took a three-pronged approach to eliminate the company’s fiscal year 2015 tax liability:

1. Establishing capitalization vs. expense, relative to the tangible property regulations

2. Using the accelerated depreciation method rather than the straight-line method, which included a cost segregation of the four real estate facilities and a fixed asset review and categorization of historic fixed assets

3. Capturing energy incentives – in this case, Section 179D deductions – for lighting efficiency upgrades within three of the company’s four manufacturing facilities.

The Result

The following are the resulting benefits of CTI’s three-pronged approach used to eliminate XYZ, Inc.’s tax liability. Additionally, the below illustrates the additional value from CTI’s comprehensive approach over and above traditional cost segregation providers.

Fixed Asset Review:

  • 2015 additional depreciation (including section 481(a)): $2,813,293
  • Tax-effected benefit (@40%): $1,125,317
  • Net present value (NPV): $659,898
Standard Cost Segregation:
  • 2015 additional depreciation (including Section 481(a)): $1,931,159
  • Tax-effected benefit (@40%): $772,464
  • Net present value (NPV): $486,196
Additional benefits of using CTI over traditional cost segregation provider:
  • 2015 additional depreciation (over and above competition): $882,134
  • 2015 tax-effected benefit (over and above competition): $352,853

By coupling a fixed asset review, including an energy efficiency study, with a cost segregation study, CTI is able to go one step further and assess other tax benefits existing within the realm of tangible property regulations. This comprehensive approach ensures you’re reducing your tax liability while maximizing the allowable tax savings year after year.

Want to learn more about conducting a cost segregation study at your organization? Download your complimentary, educational guide below.

Maximizing The Benefits Of Cost Segregation  Manage your fixed assets activity with cost segregation to maximize tax  savings for your real estate property Download Guide

Topics: Cost Segregation

Taz Singh, CPA

Written by Taz Singh, CPA

Taz has 20 years of experience in tax and business incentives. Prior to establishing CTI, Taz served as a corporate tax auditor for the California Franchise Tax Board. During his tenure, Taz specialized in auditing tax credits, including manufacturers’ investment credits, research & development credits and credit limitations (IRC 382 Limitation) due to ownership changes.