Specialized Tax Incentives for Hotel and Motel Owners

Hotel owners have four major tax incentives available to them, yet most are not taking advantage of them and are losing money as a result. The main four programs are:
1) Engineering-based Property Cost Segregation
2) Energy EPAct / 179d
3) Property Tax Reductions
​4) Work Opportunity Tax Credit

Engineering-Based Cost Segregation

Engineering-based cost segregation identifies opportunities for federal, and in some cases, state tax advantages to owners of commercial industrial real estate by accelerating the depreciation on their property. We work with firms that have performed several hundred studies for large and small hotels across the U.S.
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Taxpayers are typically correct in depreciating personal property such as equipment and furniture over five or seven years, but they often neglect available federal and state tax benefits by erroneously depreciating their entire investment in constructing or acquiring a building over 39 years. To do this correctly, one must hire an experienced engineer with a thorough understanding of construction finance.  The engineer will review all blueprints, architectural drawings, and electrical plans to isolate structural and mechanical components from those that are considered personal property in addition to identifying architectural and engineering fees that can be segregated.  The resulting cost segregation report allows a taxpayer to:

• Adjust the timing of deductions thus maximizing tax savings
• Create a complete audit trail to resolve any IRS inquiries
• Capture immediate retroactive savings on qualifying properties
• Reduce real estate tax liabilities significantly

Energy EPAct/179d

The second program often missed by those in this Industry is Energy EPAct /179d. This is a federal deduction available for energy efficiency items placed in service after January 1, 2006. If you upgraded lighting, HVAC, or any part of the building envelope with energy efficient items you are likely eligible for a deduction of up to $1.80 per square foot.

For example, the owner of a 65,000 square foot Holiday Inn Express completed this analysis. The benefit identified equated to $1.20 per square foot in deductions...for a total deduction of $78,000 for the owner of the property!

Property Tax Reduction

Probably the most frustrating bill that comes each year (or in some cases, twice each year) is the property tax bill. As of this writing, our studies indicate the average hotel in the United States is being overcharged by 15% on their property taxes. There are many reasons hotels are overcharged but mainly it is the result of improper assessments by the municipality. If you are a hotel owner and are paying property taxes over $50,000 per year, you should have a review completed on your facility. Reductions in this area are direct to your bottom line!

Work Opportunity Tax Credit

As a follow-up to the "great recession" of the late 2000s, the federal government instituted a number of incentive programs to drive the creation of new jobs. Among the many was the PATH Act, signed into law in late 2016. Employers of Work Opportunity Tax Credit candidates generally can earn a tax credit equal to 25% or 40% of a new employee's first-year wages, up to the maximum for the target group to which the employee belongs. Employers earn 25% when the qualifying employee works at least 120 hours and 40% when the qualified employee works at least 400 hours. The minimum total benefit by employment classification is $1,200 and the maximum benefit is $9,600.

​If you have not had a thorough review on your facility, especially as it relates to the areas of Property Cost Segregation, Energy EPAct, Property Tax Reduction, and the Work Opportunity Tax Credit, you are likely losing money that should remain in your pocket.