A Little-known Tax Strategy Could Increase Revenue For Hoteliers

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Cost Segregation benefits hotel owners in the tens of thousands or more.

Running a hotel is no easy task and comes with various expected and unexpected expenses. Every hotel owner remembers when the Tax Cuts and Jobs Acts brought 100% depreciation into place in 2017. However, it was not until late last year when Washington finalized the qualifications and instructions for how every hotel owner can claim these savings.

Many hospitality industry owners and employees continue to struggle in the wake of the COVID-19 epidemic, facing a freefall in revenue as guest rooms continue to stay empty week after week. Feeling the pressure of the economic upheaval, many hoteliers are left searching for new potential cash flows previously missed and overlooked.

What is Cost Segregation?

Cost Segregation is a lesser-known strategy for maximizing property owners’ bottom line. The process starts by having Cost Segregation specialists identify commercial building components – such as amenities, fixtures, flooring or HVAC units – and reclassifying their depreciation timeline to much shorter periods according to IRS guidelines.

A Cost Segregation Study can reallocate up to 30% of total assets to 5,7,15, or 39-year life classes. Hotels that have been purchased or constructed since January 1st, 1987 qualify for accelerated depreciation. Any updates or renovations since the hotel’s purchase or construction can also qualify for depreciation. 

This detailed procedure subsequently lowers reportable income and income taxes, yielding a significant increase in tax benefits for hoteliers. While the rules set in place in 2017 were beneficial to hoteliers, the 2019 specifications make it clear that they can write off 100% of depreciable business assets with a recovery period of 20 years or less. This gives hotel owners the potential to save big on standard upkeep expenses.  

Personal property hotel assets can include:

  • Flooring choices
  • Decorative lighting
  • Cabinetry
  • Electrical systems
  • Plumbing systems
  • Power generators

What to Look For in a Professional Tax Team

If you are looking to hire a company to perform a Cost Segregation Study on your property,  do your research. Make sure the team has qualified engineers with this unique experience on staff. While you are able to hire an engineer and a tax expert from two different companies, it is best to ensure they are working together hand in hand.

A thorough investigation of your hotel assets to make sure you not only get rewarded for recent purchases but older purchases as well. Even if you missed the extended filing date of July 15th for the 2019 tax season, you could still qualify for deductions in the 2020 tax season. 

A cost segregation study is one of the most profitable investments a hotel owner can make due to the revenue-enhancing opportunities they can uncover. For hospitality industry owners, Cost Segregation can be an essential component to their cost-saving plan during this unprecedented time. 

80 DAYS Benchmark
80 DAYS Benchmark
Lee Ferry
Lee Ferry is the President of National Tax Group and a high achiever honored for leading sales growth of an Inc 500 Company. National Tax Group specializes in tax strategies for commercial property owners, architects and designers. The NTG team provides services in energy-efficient tax deductions, cost segregation studies and more.