Published by AE Tax Advisors Team • 2025-02-20

Self-Storage Facility Owner Accelerates $200,000+ in Depreciation

The Client

Raymond Park, a serial entrepreneur in Houston, Texas, purchased a 250-unit self-storage facility for $2.8 million. He also operated a consulting business generating $420,000 in annual income. The storage facility was producing $310,000 in gross annual revenue with a 72% occupancy rate.

The Problem

Raymond's accountant was depreciating the facility over 39 years as commercial property, generating only $57,000 per year in depreciation. With his consulting income layered on top of the storage revenue, Raymond was facing a combined federal and state tax bill exceeding $195,000.

Our Strategy

We performed a detailed cost segregation study that identified significant reclassification opportunities unique to self-storage facilities. The study moved $285,000 into 5-year property (roll-up doors, security systems, interior partitions), $120,000 into 7-year property (office furniture, computer systems), and $390,000 into 15-year land improvements (paving, drainage, perimeter fencing, signage). With bonus depreciation applied, Raymond captured $795,000 in accelerated depreciation in Year 1.

The Results

The accelerated depreciation created a paper loss that offset both the storage income and a large portion of Raymond's consulting income. His combined tax bill dropped from $195,000 to under $10,000, delivering $207,000 in Year 1 tax savings. Raymond is now under contract on a second storage facility and plans to apply the same strategy.

Key Takeaway

Self-storage facilities contain a high concentration of short-lived assets -- roll-up doors, security gates, paving, and interior partition walls -- making them exceptionally strong candidates for cost segregation studies.