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Cost segregation for hotels — why the return is so much bigger here

Hotels are the strongest cost-segregation asset class in real estate — furniture, fixtures, kitchen equipment, and building systems put a large share of the purchase price into 5-, 7-, and 15-year property instead of a 39-year straight line. Paired with bonus depreciation, that reclassification can turn a five-figure first-year deduction into a seven-figure one. The number that determines whether any of it helps you is your ability to use the loss, not the size of the deduction.

A hotel is furnished and equipped the way almost no other commercial property is — beds, casegoods, kitchen line, HVAC by room, elevators, signage, pool equipment. A cost-segregation study reclassifies that share of the price out of 39-year real property and into 5-, 7-, and 15-year buckets, then bonus depreciation lets a large piece of the reclassified basis land in the first year rather than depreciating over decades.

On a worked mid-scale property, a study plus bonus depreciation turned a $572,408 first-year deduction — the straight-line default — into $4,381,276, driven by $2,355,200 of FF&E and short-life reclassification and $2,086,466 of bonus depreciation on top of it.

The number the brochure leaves out: a deduction is worth its marginal rate times your ability to actually use it. Passive real-estate losses are capped against passive income for most owners under the passive-activity rules; a hotel operated for you — rather than through a qualifying real-estate-professional or material-participation position — is passive income for this purpose in most structures. Run the study, then run the passive-activity math before pricing the tax benefit into your offer.

#hotels#hospitality#cost segregation#bonus depreciation

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