Real Estate Investors Benefit from Cost Segregation for Lodging
Real estate investors in the hotel/lodging industry face a myriad of challenges in achieving success. Occupancy and room rate experience wild swings during a seven to 10 year period. A hotel that had 70 percent occupancy with an average daily rate (ADR) of $100 can experience 55 percent occupancy and $70 ADR several years later. Operating expenses for labor, utilities and property taxes are a continuing challenge real estate investors. Property tax protests are an annual challenge in states with high property tax rates and aggressive assessors, such as Texas.
In addition to working hard to earn a profit, real estate investors and lodging owners should consider a modest effort to retain more of their income. Federal taxes alone can claim over a third of net income.
Cost segregation is a simple yet powerful tool that offers substantial tax benefits by increasing depreciation, an important non-cash tax deduction. Most depreciation schedules simply have land and long-life property (39 years for a lodging facility). Is it realistic that a bed, linens, furniture, television, carpet or kitchen equipment will last 39 years? Of course it’s not reasonable. Cost segregation increases depreciation by enhancing the depreciation schedule to include up to 130 items. Most items have a depreciable life shorter than 39 years that increases the amount of depreciation. Cost segregation is not identical to component depreciation. While the end result is similar, the methodology is much different. Component depreciation was terminated in the early 1980s.
Income tax reduction and tax deferral are the primary tax benefits of cost segregation. Tax reduction occurs since less income is subject to federal taxation at the ordinary income rate (up to 35 percent). More income is characterized as capital gains, which is taxed at up to 15 percent. To the extent cost segregation increases depreciation, it also shifts the character of income from ordinary to capital gains. It also defers the payment of taxes from the year in which income is earned to the year when the property is sold. In effect, real estate investors are getting an interest-free loan from the government.
Lodging investors and owners work hard to prosper. Consider cost segregation to increase tax deductions and reduce your federal income taxes.
Click here for a FREE preliminary analysis of tax savings resulting from your property.
Cost segregation produces tax deductions and reduces federal income taxes across the country and in every size market. Below are just a few examples of where cost segregation generates meaningful tax deductions.
City:
- Bridgeport, CT
- San Francisco, CA
- New York, NY
- Washington, DC
- Denver, CO
- Tampa, FL
- Memphis, TN
- Baltimore, MD
- Philadelphia, PA
- Los Angeles, CA
- Charleston, SC
- Palm Bay, FL
- Raleigh, NC
- Allentown, PA
- El Paso, TX
- Chattanooga, TN
- Honolulu, HI
- Des Moines, IA
- Wichita, KS
- Augusta, GA
- Louisville, KY
- Virginia Beach, VA
- Poughkeepsie, NY
- Syracuse, NY
- Youngstown, OH
- Providence, RI
- Chicago, IL
- Boise, ID
- Lakeland, FL
- Worcester, MA
Cost segregation produces tax deductions for virtually all property types.
Property Type:
- Discount store
- Lodging
- Neighborhood shopping center
- Office building
- Car wash facility
- Hotel
- Movie theatre
- School
- Airplane hangar
- Daycare center
Almost every industry, including the following, can generate cost-efficient tax deductions by using cost segregation.
Industry:
- Automotive parts distributors
- Metal manufacturing
- Furniture manufacturing
- Textile product mills
- Leather product manufacturing
- Nondurable good wholesalers
- Apparel manufacturing
- Health care facilities
- Publishers
- Real estate lesser
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