Cost Segregation for Hotels & Hospitality

Hotels are uniquely suited for cost segregation because they contain an outsized share of personal property and land improvements relative to the structural shell. From guest room furnishings to commercial kitchens to parking lots, the reclassification opportunities are extensive.

Why Hotels Are Ideal for Cost Segregation

The IRS depreciates commercial buildings over 39 years. But in a typical hotel, 30% to 50% of the total cost qualifies for accelerated depreciation schedules of 5, 7, or 15 years. That's significantly higher than most other commercial property types.

Reclassifiable components in a hotel typically include:

• Guest room fixtures: Carpeting, wall coverings, cabinetry, bathroom vanities, lighting
• Furniture, fixtures & equipment (FF&E): Beds, desks, chairs, televisions, mini-fridges
• Kitchen equipment: Commercial cooking equipment, walk-in coolers, exhaust systems
• Pool and fitness areas: Pool systems, gym equipment, specialty flooring
• Site improvements: Parking, landscaping, exterior lighting, signage, walkways
• Specialized systems: Electronic door locks, security cameras, point-of-sale systems

Cost Segregation for Hotel Renovations

Hotel renovations — often called Property Improvement Plans (PIPs) — are particularly strong candidates for cost segregation. When you renovate a hotel, much of the spend goes toward personal property (5- and 7-year assets) that qualifies for immediate or accelerated depreciation.

Even if you completed renovations years ago, a look-back study can capture missed depreciation through a change in accounting method (Form 3115), applied in the current tax year.

Flagged Hotels vs. Independent Properties

Both flagged (branded) and independent hotels benefit from cost segregation. Flagged properties often have higher FF&E requirements mandated by the brand, which increases the percentage of reclassifiable assets. Independent properties may have more flexibility in design, but the reclassification potential remains strong.

Integrating with Your Tax Strategy

Cost segregation is most powerful when combined with the right entity structure and broader tax strategy. At Crane Financial, we don't just hand you a depreciation report — we integrate the study into your complete tax picture, including retirement planning and real estate tax strategies.

Learn more about how cost segregation works or see what a study costs for your property.