How One Child Care Owner Turned a $1.8M Building Purchase Into $78,000 in Tax Savings — In Year One

Meet the Client

Sarah is the owner of a licensed child care center serving families in her community. After years of leasing her facility, she made the decision to purchase her building outright — a $1.8 million investment in the long-term stability of her program. What she didn’t know yet was that the way she depreciated that building could dramatically change her tax picture in year one.

The Challenge

Like most child care center owners, Sarah understood that purchasing a building came with depreciation benefits. What she didn’t realize was that the IRS default approach — depreciating a commercial building straight-line over 39 years — was leaving a significant amount of money on the table.

Under the standard method, her $1.8 million building would generate roughly $46,000 in annual depreciation. A meaningful deduction, but nothing transformational. And in the year she stretched financially to make the purchase, Sarah was expecting a large tax bill.

“I knew buying the building was the right move for the long-term, but I was worried about what it was going to do to my taxes that first year. I had no idea there was a strategy that could flip that completely.”

Our Approach

When Sarah came to Honest Buck, we immediately identified her building purchase as a strong candidate for a cost segregation study — a tax strategy that breaks down a commercial building into its individual components so that shorter-lived assets can be depreciated over 5, 7, or 15 years instead of 39.

We coordinated a cost segregation study with a qualified engineering firm. The study systematically analyzed every component of Sarah’s $1.8 million building — electrical systems, flooring, specialty lighting, parking areas, landscaping, and more — and reclassified those components for accelerated depreciation.

Here’s what the numbers looked like:

The Results

In the same year she made the largest financial investment of her business life, Sarah received a dramatically reduced tax bill instead of the large one she had braced for. The $225,000 in accelerated depreciation deductions shielded a substantial portion of her income from federal and state taxes — saving her $78,000 she could redirect into her program, her staff, and her financial reserves.

“I remember when we went through the final numbers. I had expected to write a big check to the IRS that April. Instead, I was looking at a refund. Honest Buck completely changed the outcome of year one for me.”

Beyond the immediate savings, Sarah now has a clean depreciation schedule properly aligned with the actual components of her building — meaning she continues to benefit from higher deductions in the early years of ownership when her cash flow needs it most.