Cost Segregation for Hotels: The Overlooked Tax Play That Frees Up Cash
If you've bought, built, or renovated a hotel in the last several years, a cost segregation study may be the single highest-ROI tax move available to you. Here's how it works.
Most hotel owners depreciate their property over 39 years, the standard life for commercial real estate. But a hotel isn't one monolithic asset—it's a building wrapped around thousands of shorter-lived components: carpet and FF&E, decorative lighting, millwork, specialty plumbing and electrical, signage, pool equipment, and site improvements like parking and landscaping.
A cost segregation study uses engineering analysis to reclassify those components into 5-, 7-, and 15-year depreciation lives. Front-loading depreciation this way—especially when paired with bonus depreciation—can convert a large slice of your basis into deductions you can use now, not decades from now.
Why hotels are ideal candidates
Hotels carry an unusually high proportion of short-life assets compared to, say, an office building or warehouse. It's common to reclassify 20–35% of a hotel's depreciable basis into shorter lives. On a $6M property, that can mean well over $1.5M shifted into accelerated depreciation.
That matters most right after an acquisition or renovation—exactly when your cash is tightest and a brand PIP may be looming. The tax savings become dry powder for your next deal.
You may not have missed the window
Owners often assume that if they didn't do a study in the year they placed the property in service, the opportunity is gone. It isn't. A look-back study lets you claim the previously unclaimed depreciation on your current-year return through an automatic accounting-method change—no amended returns required.
The right move is always to model it first. We run a free preliminary estimate; if the benefit doesn't clearly exceed the cost of the study, we'll tell you to skip it.
This article is general information, not tax advice for your specific situation. For guidance tailored to your properties, book a free consultation.