by Lee Ferry
Running a hotel can be unrelenting, and it comes with an endless array of unexpected expenses. But there also is great opportunity. There are some tax-saving measures available to hotel owners that are easy to claim, and in some cases, can be taken advantage of retroactively.
The Tax Cuts and Jobs Act of 2017 has had a significant impact on hoteliers and the tax savings they are able to take advantage of. The act has increased the benefits made available through Section 179D Energy Efficient Tax Deduction, as well as what is available through cost segregation studies. Maximizing these lucrative incentives can be painless for hotel owners and frees up cash otherwise paid to the federal government.
These savings are significant and available to all hoteliers. Typically, when hoteliers hear about tax reform and tax deductions, they mistakenly think they don’t qualify and don’t know what steps to take in order to achieve them.
In real estate, hoteliers have perfected the understanding of ‘location, location, location’ when building and buying their hotel. Once the location is up and running, companies such as National Tax Group can help hoteliers understand the next critical thing to their hotel – ‘tax savings, tax savings, tax savings.’
Using Section 179D and cost segregation can provide the non-cash tax deductions many are looking for that will ultimately reduce their taxable income, allowing hoteliers to keep more of their hard-earned money and invest it back into their hotels.
REALLOCATE 30 PERCENT OF TOTAL HOTEL PROPERTY ASSETS
Hoteliers are able to reduce taxable income and invest money back into their buildings by having a cost segregation study performed. The IRS prefers taxpayers to use this engineering-based approach with professional tax firms. When a study is performed by an engineering firm, the benefits are maximized and the report will hold up to any scrutiny. These engineering firms also will defend the work with the IRS at no cost in case of an audit. The added protection of knowing the report was done correctly and that it can be professionally defended ensures that the tax savings will be achieved for the hotelier.
By having a cost segregation study performed, hoteliers can reallocate their total assets to 5-, 7-, 15-, or 39-year classes thereby freeing up cash to put back into the daily functionality or long-term plan of the hotel. Components that are examined during the study include the hotel’s walls, roof, foundation, lighting, doors, beams, windows, and fire protection.
Personal-property assets that already exist within your hotel and can be reclassified during this study include flooring choices, decorative lighting, cabinetry, electrical systems, plumbing systems, and power generators.
Even if you’ve had a cost segregation study done in the past, it is possible that there have been missed opportunities with the new laws, and it may be worth having another one performed.
SAVE ON YOUR ENERGY BILL AND EARN $1.80 PER SQ./FT.
It’s no secret that hotels often rack up huge power bills due to the vast amount of people they serve and the 24-hour operations that come with the territory. Thanks to Section 179D, hoteliers are able to gain significant tax deductions for their contribution to sustainability and cutting down power costs by installing energy-saving systems onto their properties. As an additional bonus, if the measures taken to reduce energy consumption meet the 179D Energy Efficiency standards set into place by ASHRAE, hoteliers can claim $1.80 per square foot on each qualifying property.
Hotel owners who have installed qualifying energy-saving equipment and technology into newly constructed or renovated buildings can qualify; the energy-saving system categories include lighting, building envelope, and HVAC systems.
Hotel owners are able to deduct $0.60 per square foot in each category, allowing for a deduction of up to $1.80 per square foot on each hotel property. If your property only qualifies for one category, you will still receive a $0.60 deduction.
LET THE EXPERTS DO THE HEAVY LIFTING
One of the most enticing perks of earning these tax incentives is that they require little effort from hotel owners. If a hotel owner decides to work with a third-party tax firm, the hotelier only has to provide basic documentation. And with many tax firms, you pay only if you receive a return on investment. The main agenda for any tax firm is to provide prime tax-saving services and to take care of all documentation needed for submission to the IRS.