Example of Cost Segregation Study on Fitness Center

[Julio Gonzalez]

This fitness center had $2,407,081.37 in first year tax savings.

If a Cost Segregation Study had not been performed, the $7.8 Million Fitness Center in Vineland, New Jersey built in 2020 would’ve only had first-year depreciation of $198,300. The real estate owners accelerated depreciation in year one to $2.4 Million. You can usually segregate between 20-45% of the assets for a fitness center. These may be items such as special flooring, lockers, decorative trim, special cabinetry, Computer equipment, wallcoverings, window treatment, etc. If the fitness center has an indoor pool, this won’t qualify as personal property since it is considered to be structural in nature, but any pool equipment would also qualify.

A cost segregation study is a strategic tax planning tool that separates the assets that have a shorter useful life and can be depreciated over 5, 7 and 15 years from the residential rental property or nonresidential real property that are depreciated over 27.5 and 39 years, respectively. By accelerating your depreciation schedules, you reduce your taxable income which in turn increases your operating cash flow. This also allows for property owners to more easily write-off assets that get damaged/destroyed as the value of these assets is determined as part of the study. You will receive a report as a result of the cost segregation study that supports the breakout between asset classes and new depreciation schedule in the event that you are audited by the IRS.

Have you had a cost segregation study performed on a fitness center or another type of property?