Hotel Cost Segregation Case Study

Study Overview

In this case study done for tax year 2026, the hotel had a total cost of $8,070,000, not including land. Through cost segregation analysis, the owner was able to reclassify 27% of the total costs to either 5 or 7 year property and 8% of the total costs to 15 year property.

This resulted in a Net Present Value After Tax Benefit of over $575,000. The additional depreciation in the first year of the study was approximately $2,754,900.

Qualified Property

Hotels will vary based on the size of the parking lot, the level of decorative features in the lobby and guest rooms, whether the hotel includes a restaurant with full kitchen and whether the hotel is an extended stay hotel where guest rooms include kitchens. Most hotels will own the land improvements surrounding the building itself. The land improvements that qualify for accelerated depreciation include, but are not limited to; some excavation, storm water systems, asphalt, concrete curbs and sidewalks, concrete dumpster pad, dumpster enclosure, swimming pool (both indoor and outdoor), landscaping, irrigation and pylon or brick façade signage. Other land improvements may include fencing, concrete bollards, exterior decorative lighting, tennis courts, other recreation areas and brick or concrete canopies at the front of the hotel. Brick or concrete canopies will qualify based upon construction and how they are attached or unattached to the hotel. The interior of most hotels will include certain millwork, decorative lighting/dedicated electrical work, dedicated electrical to office equipment, lobby reception desks/counters/cabinetry, certain interior signage, dedicated plumbing work to laundry equipment, communications/data systems, intercom systems, floor coverings and wall coverings. Some hotels will also include surveillance systems, equipment and plumbing related to pools/hot tubs, dedicated electrical/plumbing/gas lines related to hotel kitchens, dedicated electrical and plumbing related to guest room kitchens, cabinetry and countertops in guest room kitchens and additional decorative millwork in the guest rooms.