ATS recently completed a Cost Segregation and 179D Energy Deduction study on a 25,000 SF office building in Arlington, Virginia. This in-depth case study explores how the building owner unlocked over $273,000 in tax savings using these advanced tax strategies.

What is Cost Segregation?

Cost segregation is a tax planning strategy that allows commercial property owners to accelerate depreciation deductions by reclassifying certain components of a building into shorter depreciation periods. This results in:

  • Reduced taxable income
  • Improved early cash flow
  • Significant tax savings

Case Study: Office Building X in Arlington, VA

  • Year Built: 1979
  • Placed in Service: 2023
  • Property Type: Office Class B
  • Gross Building Area: 25,000 SF
  • Building Value: $4,369,521
  • Total Tax Savings: $273,126

ATS conducted a comprehensive cost segregation study to identify assets eligible for accelerated depreciation.

Accelerated Depreciation Breakdown

The study found that 20% of the building’s value — $866,329 — could be reclassified into 5, 7, and 15-year depreciation categories, including:

  • Personal property (e.g., carpet, fixtures, furniture)
  • Land improvements (e.g., parking lots, landscaping)

This accelerated depreciation created significant first-year deductions:

  • Short-life property deductions: $866,329
  • Bonus depreciation (80%): $693,063
  • Year 1 Tax Savings: $187,127
  • Total Tax Savings from Cost Segregation: $233,908

What is the 179D Energy Efficient Commercial Buildings Deduction?

Section 179D is a federal tax deduction incentivizing energy-efficient improvements to commercial buildings. Enacted under the Energy Policy Act of 2005 and expanded under the Inflation Reduction Act of 2022, it allows qualifying property owners to deduct:

  • Up to $5.81 per square foot
  • Retroactive claims may be allowed
  • Encourages sustainability and energy cost reduction

179D Qualified Improvements

Eligible systems include:

  • Lighting Systems
  • HVAC Systems
  • Building Envelope Improvements
  • To qualify, the building must achieve at least 25% energy savings compared to baseline standards.

179D Deduction for Building X

  • Building Size: 25,000 SF
  • Deduction Rate (2025): $5.81/SF
  • Total 179D Deduction: $145,250
  • PWA Compliance: Fully met

Combined Tax Savings Overview

  • Cost Segregation Deductions: $866,329
  • 179D Deduction: $145,250
  • Total Additional Deductions: $1,011,579
  • Total Tax Savings: $273,126

Why Choose ATS?

ATS understands the added compliance surrounding these tax strategies and ensures your Cost Segregation and 179D studies will comply with US Tax Code. We simplify complex requirements, guide you through documentation and IRS standards, and help you capture every available deduction while minimizing risk. With ATS, you gain a trusted partner who makes the process seamless and efficient.