As seasons change, so do hospitality companies. Perhaps you are considering the installation of energy-efficient lighting in your restaurants, or your hotel group needs new HVAC units. While expenses may add up, there are ways that companies can save money on taxes. This article highlights a few potential tax-saving opportunities that owners should consider.
Cost Segregation
With cost segregation, a company can reclassify assets that are long-life real property—with a typical depreciable life of 39 or 27 years—to a shorter depreciable period of five, seven, or 15 years. This change can help hospitality owners speed up depreciation deductions for tax purposes, which can help lower taxable income and boost cash flow. Professionals at Forvis Mazars can assist with cost segregation studies performed on newly constructed properties; improvements, renovations, and/or expansions; and acquired properties.
Repair vs. Capitalization
Hospitality companies should examine their expenditures to determine whether they are repairs (which may be currently deductible) or improvements (which should be capitalized and depreciated). A good time to make the assessment is when a hotel is going through a property improvement plan, which could range from upgrades to mechanical and electrical systems at older properties to smaller cosmetic changes at newer buildings.1 Be aware that under a safe harbor election, small taxpayers are permitted to deduct costs of work performed on owned or leased buildings, such as repairs and maintenance.
Section 179D
When hospitality companies make energy-efficient improvements, Section 179D of the Internal Revenue Code offers a tax deduction. Incentives are available for the installation of energy-efficient heating, ventilation, air conditioning, hot water systems, lighting, and components of the building envelope system. The deduction does not just apply to newly constructed buildings, but any structures with energy-efficient upgrades, renovations, or additions. If this deduction was missed in the prior year, there may be an opportunity to claim it in the current year without amending by filing Form 3115, Application for Change in Accounting Method. For more details on 179D, view our “Let’s Take a Look Back at 179D” article.
Business Interest Limitation
Hospitality companies also should be aware of the limitation on the deduction for business interest expense, aka the §163(j) limitation. According to the IRS, taxpayers can generally deduct interest expense paid or accrued in the taxable year. However, if §163(j) applies, deductible interest is, generally, limited to adjusted taxable income plus interest expense times 30% (with some caveats). The §163(j) limitation applies to taxpayers who have business interest expense for taxable years beginning after December 31, 2017, except for certain small businesses that meet the gross receipts test in §448(c). An opt-out election for real property trades or businesses is available, with certain requirements, and could be an option for some hospitality groups, particularly hotel owner/operators.
How Forvis Mazars Can Help
Forvis Mazars can assist hospitality companies with a wide range of services in addition to identifying potential tax savings. Our clients include amusement parks, country clubs, fitness centers, golf courses, hotels, resorts and lodging, restaurants, and more. Whether you need outsourced accounting services, process improvement, or long-range planning, we can help.
If you have any questions or need assistance, please reach out to one of our professionals.
- 1“What is a Hotel Property Improvement Plan (PIP) Really?” glrinc.net., 2025.