Specialized Tax Incentives for the Hotel & Motel Industry
Hotel owners have three major tax incentives available to them, yet most are not taking advantage and consequently losing money. The main three programs that most in this industry are missing out on are:
1) Engineering-based Property Cost Allocation
2) Energy EPAct / 179d
3) Property Tax Reduction
Engineering-based Cost Allocation
Engineering-based cost allocation 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. As an expert in this field, we have performed several hundred studies for large and small hotels across the U.S.
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 allocation report will allow 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.
We recently completed a project on a 65,000 square foot Holiday Inn Express and were able to assist in capturing $1.20 per square foot. This resulted in a $78,000 federal deduction 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!
If you have not had a thorough review on your facility, especially as it relates to the areas of Property Cost Allocation, Energy EPAct, and Property Tax Reduction, you are likely losing money that should remain in your pocket.
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