Cost Segregation Studies for Hotels
Thanks to their layout and purpose, hotels and other hospitality properties are prime candidates for cost segregation. Packed to the gills with short-life depreciation components, hotels have many opportunities that can be used to shield owners from income tax.
While rooms and their contents are the most obvious sources of depreciation, exterior sources should not be overlooked. Swimming pool areas, gyms, and parking lots all contain many opportunities.
O’Connor does not limit the scope of cost segregation to short-life components; however, and even long-term items such as the buildings themselves are also considered. This is in keeping with the IRS mandate on “units of property.”
Cost segregation studies from O’Connor can have an outstanding ROI when it comes to hospitality, with possible returns of 30-1 or more. Consult the following table to see some examples of how you can save in one year. Many of these use metrics for catch-up depreciation, a process that uses previous years of depreciation to apply to a current year’s taxes.
Sample Results for Real Hotel Studies
| Depreciable Basis | Purchase price | Purchase Date | Year of Study | 1st Year Tax Savings | Year 1 Payback | Initial 5 Years Tax Savings | 5 Year Payback |
|---|---|---|---|---|---|---|---|
| $7,513,390 | FEB 2014 | 2014 | $392,464 | $155,416 | 34.5:1 | $709,682 | 157.7:1 |
| $3,309,000 | JAN 2013 | 2015 | $451,748 | $178,892 | 59.6:1 | $247,811* | 82.6:1 |
| $8,292,875 | MAY 2014 | 2015 | $1,186,211 | $469,739 | 156.6:1 | $829,856* | 276.6:1 |
| $2,566,500 | NOV 2012 | 2015 | $492,635 | $195,084 | 65.0:1 | $241,413* | 80.5:1 |
| $1,541,605 | MAY 2015 | 2016 | $331,716 | $131,360 | 128.9:1 | $239,115* | 222.4:1 |
Results
* Results from “Catch-Up” studies which allow the owner of properties purchased in previous tax years to benefit from cost segregation in the current tax year without filing amended returns.
NOTE: The above listed tax savings are based on a 39.6% tax rate for the owner.