Hotels & Resorts: Recover $500K-$3M+ Through Cost Segregation

Absolutely! Cost segregation can be applied retroactively to properties acquired years ago. Using Form 3115 (Change in Accounting Method), you can claim all missed depreciation in the current tax year without amending prior returns. Hotels purchased within the last 3-5 years are perfect candidates.

Cost segregation is still highly beneficial even if you plan to sell. The accelerated depreciation provides immediate tax savings and cash flow now. When you sell, depreciation recapture rules apply regardless of whether you did cost segregation or not, so you're not creating additional tax liability. Many investors use cost segregation specifically before a 1031 exchange.

Yes! Franchised hotels (Marriott, Hilton, Holiday Inn, etc.) are excellent candidates for cost segregation. Whether you own or lease the building, the furniture, fixtures, equipment, and improvements you paid for qualify. Franchise buildout costs, brand-specific amenities, and ongoing renovations all qualify for accelerated depreciation.

Absolutely. You can perform cost segregation on just the renovation/improvement portion of your investment. This is common for hotels that underwent major upgrades, room refreshes, amenity additions, or brand conversions. We'll allocate only the renovation costs into shorter depreciation categories.

Mixed-use properties are perfect for cost segregation! We allocate costs appropriately between the hotel, retail, restaurant, and other components. Each use type has different depreciation schedules and qualifying percentages, so proper allocation can maximize your overall tax benefit.

Studies for hotels typically range from $10,000-$25,000 depending on property value, complexity, and number of rooms. A 150-room hotel would generally cost $12,000-$18,000. With typical first-year deductions of $500K-$1.5M, the ROI is typically 20:1 to 50:1 in year one alone.

No. Cost segregation is an IRS-approved tax strategy with decades of Tax Court precedent. Hotels are actually one of the most common property types for cost segregation due to the high percentage of reclassifiable assets. Our engineering-based studies follow IRS guidelines (Rev. Proc. 2011-14) and include comprehensive documentation that satisfies audit requirements.

Yes! Cost segregation works excellently with Qualified Opportunity Zone investments. While you're already deferring capital gains through the OZ program, cost segregation provides additional tax benefits by accelerating depreciation on the hotel property itself. These strategies stack, not conflict, providing maximum tax efficiency.

Hotels typically achieve 40-50% reclassification rates (vs. 30-35% for other commercial properties) because of the sheer volume of furniture, fixtures, and equipment required. Each guest room contains multiple qualifying assets: furniture, carpeting, lighting, window treatments, bathroom fixtures, and entertainment systems. Multiply this by 50, 100, or 200+ rooms, and you have massive reclassification potential. Add common areas, restaurants, pools, fitness centers, and site improvements, and hotels become the ideal property type for cost segregation.

FF&E (Furniture, Fixtures & Equipment) includes all movable and installed assets that are not part of the building's structural system. This includes guest room furniture (beds, dressers, nightstands), lobby seating, artwork, decorative lighting, window treatments, televisions, safes, minibars, bathroom vanities and fixtures, restaurant equipment, fitness equipment, and pool furniture. FF&E typically represents 20-30% of a hotel's total cost and qualifies for 5-year or 7-year accelerated depreciation instead of 39-year straight-line.

Under current tax law, 100% bonus depreciation is available for qualified property placed in service. This means assets reclassified to 5-year, 7-year, and 15-year categories through cost segregation can be fully deducted in year one (subject to income limitations). For a $10M hotel acquisition, this could mean $4M-$5M in first-year deductions instead of waiting 39 years. This creates massive immediate cash flow for hotel owners to reinvest in operations, pay down debt, or fund additional acquisitions.

New construction studies benefit from real-time cost tracking and detailed contractor invoices, making asset allocation more precise. Existing property studies rely on blueprints, comparable cost data, and engineering estimates. Both achieve similar reclassification percentages for hotels (40-50%), but new construction studies may cost slightly less due to better documentation. However, existing property studies using Form 3115 can recapture all missed depreciation in the current year, making them equally valuable even years after acquisition.

Absolutely. In fact, this is ideal. Renovation cost segregation studies are performed on the improvement costs only, regardless of when the building was originally acquired. Many hotels undergo major renovations every 5-7 years to maintain brand standards or reposition in the market. These renovation costs (often $2M-$10M+) can be segregated with 40-60% qualifying for accelerated depreciation. We coordinate with your property management team to minimize disruption during any required site visits.

Brand conversions (e.g., Holiday Inn to Marriott Courtyard) create excellent cost segregation opportunities. The conversion costs—including new signage, lobby redesign, brand-specific FF&E, POS systems, and Property Improvement Plan (PIP) requirements—can be segregated separately from the original building. Typically, 45-55% of conversion costs qualify for accelerated depreciation. This provides immediate tax relief to offset the significant capital outlay required for rebranding.

Extended stay properties (Residence Inn, Homewood Suites, Candlewood Suites, etc.) are excellent candidates for cost segregation. These properties have higher FF&E percentages than traditional hotels because each room includes kitchenette equipment (appliances, cabinets, countertops), additional furniture (dining tables, sofas), and more extensive entertainment systems. Reclassification rates often reach 45-50% of total cost. Extended stay properties also benefit from larger room sizes, which means more qualifying assets per unit.

Yes, and this is one of the most powerful tax strategies for hotels! Section 179D provides deductions up to $5.00 per square foot for energy-efficient improvements to HVAC, lighting, and building envelope systems. Many hotels qualify for $100K-$300K+ in 179D deductions. When combined with cost segregation, you're accelerating depreciation on FF&E and site improvements while claiming immediate deductions for energy-efficient systems. These strategies stack perfectly and should be evaluated together during any major renovation or acquisition.

We'll need your purchase/closing statement (HUD-1 or settlement statement), construction cost breakdowns (if new construction or recent renovation), property blueprints or floor plans, and an asset list if available. For franchise properties, we'll also want brand standards documentation and PIP requirements. Our engineering team will conduct a site visit to photograph and document qualifying assets. The more detailed your cost records, the more precise the study, but we can work with limited documentation using engineering-based cost estimation methods approved by the IRS.

Most hotel studies are completed in 4-6 weeks from engagement to final report delivery. The timeline depends on property size, complexity, documentation availability, and site visit scheduling. We'll work around your operational needs to minimize disruption. For hotels under 100 rooms with good documentation, we can often deliver in 3-4 weeks. Larger resorts (300+ rooms) or properties requiring extensive site visits may take 6-8 weeks. Rush services are available for properties with urgent tax deadlines.

Yes! Even if your hotel is currently operating at a loss, cost segregation provides significant benefits. The accelerated depreciation deductions can offset other passive income you may have, or be carried forward to future profitable years under NOL (Net Operating Loss) rules. Many hotel investors perform cost segregation during acquisition or renovation specifically to create tax losses that offset gains from other properties. Additionally, if you have passive income from other real estate investments, cost segregation deductions can offset that income immediately.

Absolutely! Boutique hotels and B&Bs are actually ideal candidates because they often have higher-quality finishes, more custom features, and greater attention to decorative detail than chain properties. These properties typically have extensive custom millwork, designer lighting, high-end furniture, unique artwork, and custom bathrooms—all of which qualify for accelerated depreciation. Even small properties (10-20 rooms) with acquisition costs of $2M-$5M can generate $75K-$150K+ in first-year tax savings, far exceeding the $8K-$12K study cost.

Yes, and this is actually a smart strategy! Cost segregation provides immediate cash flow and tax savings during your ownership period. When you sell and execute a 1031 exchange, you're deferring all gain recognition—including depreciation recapture—into the replacement property. The accelerated depreciation doesn't create additional tax liability at sale; it simply provides benefits during your holding period. Many sophisticated hotel investors perform cost segregation on every property they acquire, then 1031 exchange into the next property, continuously deferring taxes while enjoying accelerated depreciation benefits.