Cost Segregation Case Study – Hotel

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    • Jan 13, 2025
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Maximize Your Hotel’s Tax Strategy

What is Cost Segregation
Cost segregation is an effective tax planning strategy that helps businesses and individuals involved in constructing, purchasing, expanding, or renovating real estate reduce their tax liabilities by accelerating depreciation deductions, which allows for the deferral of both federal and state income taxes.

Hotels
For hotels, this strategy can be especially advantageous, as it allows for the accelerated depreciation of various property components, including decorative elements, furnishings, and specialized equipment, all of which can be depreciated over a shorter period than the hotel’s standard depreciation. The hotel depreciation life is significantly shorter for these components than the overall structure, providing immediate tax relief and improving cash flow. By identifying these assets and depreciating them over shorter timeframes, hotel owners can greatly lower their tax burden. 

Practical Example

The following case study highlights the benefits of accelerated depreciation, demonstrating how similar advantages can be realized for hotels with complex infrastructure and guest-focused amenities, ultimately optimizing the hotel depreciation life for tax efficiency.

Building information

○ Building Type 🡪 Hotel
○ Property Type: 🡪 Commercial
○ Building Size: 🡪 54,916 SF
○ Study Scope: 🡪 New Build
○ Condition: 🡪 New
○ Filling Year: 🡪 2023
○ Date Placed in Service: 🡪 2022
○ Purchase Price less Land or Total Construction Cost: 🡪 $90,000,000
○ Tax Rate: 🡪 30%
○ Return on Investment Factor: 🡪 8%

Summary of Benefits

○ 25% Additional Tax Deductions in First Year: 🡪 $58,252,486

○ RNPV Over Remaining Life of Property: 🡪 $15,143,298

○ Net Present Value (NPV) Over 10 Years: 🡪 $16,248,429

Building Allocation After Study

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    5 Year Property

    Depreciable Basis: $12,309,114 at 14%

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    7 Year Property

    Depreciable Basis: $2,172,197 at 2%

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    15 Year Property

    Depreciable Basis: $13,461,828 at 15%

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    39 Year Property

    Depreciable Basis: $62,056,862 at 69%

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    Total

    Depreciable Basis: $90,000,000 at 100%

Sales Tax Exemptions

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We help companies unlock millions in funding through R&D tax credits, energy incentives, state, and local tax programs. Our experts partner with finance and executive teams to identify overlooked opportunities, improve cash flow, optimize tax positions to reinvest savings into innovation and sustainable growth.

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