Emerging Trend for Hotel Owners/Hospitality
Cost segregation studies are typically beneficial to almost all types of real estate, however hotels are especially well suited for these studies. Hotels that include restaurants, pools, conference rooms, or banquet halls result in even greater tax savings.
The cost segregation study does not create depreciation; rather it allows you to front load the depreciation and decreases your taxable income over the first 15 years of ownership. You can then use this monetary savings to invest in other properties or expand your business.
One way to ensure that your hotel business is profitable is to closely scrutinize depreciation deductions. Increased depreciation will decrease your taxable income and lower your taxes. This emerging trend for hotel owners’ increases cash flow, improves loan potential, and discovers potential hidden property value among other benefits.
We provide a CPA ready study, everything needed is included in the study.
* Must be “for profit” & have an IRS tax liability
* Must have owned property less than 15 years (actual building can be older)
* Valuation minimum of $1M on Commercial Property (including major renovations, or expansions) OR A minimum of $250,000 in leasehold improvements or build outs (not FF&E)
Typical Hotel Estimate Sample
Cost Basis: $6,882,777
Accelerated: $1,811,500 (26%)
First Year Tax Benefit: $411,332
Five-Year Tax Benefit: $825,546
Additional Benefits to Hotel Owners:
1. Maximizing tax savings by adjusting the timing of deductions. When an asset’s life is shortened, depreciation expense is accelerated and tax payments are decreased during the early stages of a property’s life. This in turn, releases cash for investment opportunities or current operating needs.
2. Creating an audit trail. Properly documented cost segregation helps resolve IRS inquiries at the earliest stages.
Playing Catch-Up. Taxpayers can capture immediate retroactive savings on property added since 1987 and take the entire amount of the adjustment in the year the cost segregation is completed. This opportunity to recapture unrecognized depreciation in one year presents an opportunity to perform retroactive cost segregation analysis on older properties to increase cash flow in the current year.
“Cost Segregation is a lucrative Tax Strategy that should be used in almost every purchase of commercial real estate.” IRS, Wall Street Journal