The Hotel Industry is unique in that like a commercial product, a Hotel follows a definite life cycle. If a Hotel Owner does not keep this in mind, their facility can quickly become worn out and dated in comparison to their competition. To stay competitive, Owners must acknowledge that there will be constant new brand competition. A newer, swankier hotel that offers the latest amenities to its guests will quickly put an outdated hotel out of business. This fact leaves few options of staying competitive for a Hotel Owner. The most prominent option would be to rebrand. What does “rebranding” entail?

Rebranding can be a broad term ranging from a simple revamping of a logo but more often is a much larger undertaking with the ultimate goal of retaining guest loyalty and awareness. Rebranding is especially important today because of major social, environmental and technological changes that have taken place over the past five to ten years. For example, just a few years ago wifi throughout a hotel was rare, flat screen televisions were a novelty, the expectation of a hot breakfast almost unheard of, and eco-friendly was a word most people were unfamiliar with. All of those ideals have changed, and are now an expectation for most travelers. This new expectation has forced hotel brands to insist their franchises undertake multi-million dollar rebranding to live up to their flag.

What does this mean for Hotel Owners?

There is a little known opportunity for Hotel Owners that would directly affect the rebranding of their organization. The opportunity is Specialized Tax Incentives, specifically Engineering-based Property Cost Allocation, aka Cost Segregation; Property Tax Reductions; Bonus Depreciation; as well as various Energy-based Tax Credits.
Specialized tax credits are an essential fiduciary component when building, purchasing or renovating a hotel or motel. These credits affect rebranding and the constant renovation of non-structural components of their building such as:
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• Carpeting and flooring
• Wifi and Internet cabling
• Decorative lighting
• Parking lots
• Cabinetry
• Curbs and sidewalks
• Electrical and plumbing systems
• Landscaping
• Power generators
• Fountains
• Security systems
• And many more....

A Cost Segregation Study is an engineering-based tax analysis in which these types of components are broken out and allocated to a shorter life class, depreciating them at an accelerated rate. This means a building purchased, constructed or renovated since January 1, 1987 and costing in excess of $500,000 should have all improvements and renovations qualifying based on their individual completion dates. So, every Hotel having performed renovations through rebranding within that time frame have a potential benefit sitting on the take just waiting to be captured.

To determine if your facility could capture a benefit, simply contact David Ross & Associates at 678-654-9500 and ask for a basic calculation, performed at no charge.

David Ross & Associates, Business Advisors
Phone 678-654-9500 • Web davidrossandassociates.com • Email david@davidrossandassociates.com

This article is available as a printable PDF here.

Year after year, the Federal Government has continued to incentivize those who invest in Commercial Property. The IRS has established guidelines that, if ignored, cause commercial real estate investors to pay more in taxes than they should.

What guidelines are being ignored by Commercial Property Investors?

Those revolving around Accelerated Depreciation; known in the taxation world as Property Cost Segregation.

Ramifications of Improper Depreciation Allocation

Most commercial property investors do not truly understand the substantial benefits of accelerated depreciation. This is evidenced by our analysis of thousands of depreciation schedules over the years. We have found less than 10% of investors are properly depreciating their properties. The most common misconception is, “I am going to get this money anyway.” Is this a true or false statement?

Let’s investigate....

1. Capital Gains vs Ordinary Income Rates
   Although the mechanics of these calculations are not always as simplistic as we will be making it for this example, the short response is – increased depreciation leads to paying taxes at the capital gains rate as opposed to the ordinary income rate. Since capital gains rates are likely much lower than the Investor’s income tax rate, they would benefit from accelerated depreciation.
2. Time Value of Money
   Simply put, your dollar is worth more today than it will be in the future. A tax dollar saved today therefore is worth more than a tax dollar saved in the future. Why lock up a tax savings in your property for 27-39 years when you can receive it today?
3. Catch-Up Depreciation
   If you have not completed a Cost Segregation study on your property that you have held for a period of time, did you know that you can capture your entire missed benefit immediately? The IRS allows you to complete a 481 adjustment thus enabling you to catch up all the missed accelerated depreciation into the current tax year. This provision alone could save you hundreds of thousands immediately!
4. The Power of Cash in hand
   You are a real estate “investor." This means you understand the investing power of having funds in your hand today. Cash today [in the form of tax savings] enables you to invest in additional properties. The benefits of this are exponential and allow continued growth of your investment portfolio.

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Correct allocation of real estate depreciation is essential for Commercial Property Investors to effectively manage their tax situation. Are you one of the 90% who are missing out on opportunities that 10% of your competitors are capturing?

This article was originally published at GMGSavings.com, and is reprinted with permission.