Self-storage might not be the most glamorous asset class in real estate — but when it comes to cost segregation, it punches well above its weight. This 208-unit, 29,250 square foot facility in Longmont, Colorado was one of five storage properties our client had been quietly acquiring over the years. What made this study exceptional wasn’t just the property itself — it was the power of catch-up depreciation.
When cost segregation hasn’t been performed on a property from the year it was placed in service, the IRS allows investors to capture all of that missed depreciation in a single year. No amended returns required. That’s exactly what happened here — and the results speak for themselves.
Nearly 42% of the property’s cost basis was reclassified to accelerated depreciation schedules, with the bulk landing in 15-year property: site improvements, paving, lighting, and the infrastructure that makes a storage facility actually function. The owners increased their depreciation deduction by $294,642 in a single year — capital they got to keep working for them instead of sending to the IRS ahead of schedule.
The takeaway? Storage facilities are often overlooked for cost segregation because the 5-year asset mix is thinner than, say, an apartment building. But the 15-year category more than makes up the difference — and when catch-up depreciation is on the table, the math gets very compelling, very quickly. No company should pay taxes before they have to — and now, these owners don’t have to.