The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduces key tax and compliance reforms that reshape the tax landscape for the hospitality industry. From tax deductions on tips and overtime to changes in reporting thresholds and depreciation rules, hotel owners and operators must align their strategies with the new law. In the following article, Forvis Mazars explores five key areas where the OBBBA directly impacts hotels.
1. Tip & Overtime Tax Deductions
The OBBBA introduces temporary, but significant, deductions for employees in hospitality. According to this new incentive, up to $25,000 in qualified tips and $12,500 in overtime premiums can be excluded from taxable income for employees earning less than $150,000 (or $300,000 for joint filers). These deductions are retroactive to January 1, 2025, and apply through 2028.
Key Takeaways:
- For hotel operators dealing with staffing shortages, which is fairly widespread in the hospitality industry at present, these new deductions provide new incentives for attracting and retaining talent—including management, housekeeping, bellhops, or restaurant staff.
- As far as compliance, employers will need to enhance their tracking and payroll reports to distinguish qualified tips from nonqualified tips.
2. Bonus Depreciation & Section 179 Expensing
As laid out in the Tax Cuts and Jobs Act of 2017 (TCJA), bonus depreciation was set to phase out in 2027. However, the OBBBA permanently extends this provision and increases §179 limits. Notably, 100% bonus depreciation is reintroduced and made permanent for qualifying assets, including furniture, fixtures, equipment, and qualified improvement property placed in service after January 1, 2025. In addition, §179 expensing limit is increased to $2.5 million, and allows for immediate deduction of capital expenditures.
Key Takeaways:
- Hotels looking to do a periodic refresh or forecasting for a property improvement plan (PIP) can benefit from these provisions and may consider discussing them with a tax advisor.
- Hotel owners and operators should consider cost segregation studies to increase the benefits of bonus depreciation.
3. More Favorable §163(j) Interest Deduction Rules
While the TCJA limited §163(j) interest expense to 30% of EBIT, the OBBBA modifies the §163(j) limitation on business interest expense, which is especially relevant for hotels with significant debt financing. The limitation calculation is now permanently based on EBITDA rather than EBIT, a change which may increase the amount of deductible interest expense.
Key Takeaways:
- Owners and operators of newly constructed or renovated hotel properties with large mortgages or loans may be able to deduct more interest expense than under prior law.
- Similarly, highly leveraged hotel owners such as real estate investment trusts (REITs) or private equity groups may benefit from these changes.
4. Excess Business Loss (EBL) Limitation & Qualified Business Income (QBI) Deduction Made Permanent
Both the EBL limitation under §461 and QBI deduction under §199A, previously set to expire in 2028 and 2025, respectively, are now permanent under the OBBBA. This affects hotel owners operating as pass-through entities (LLCs, S corps, or partnerships). The EBL limitation limits losses exceeding $313,000 (or $626,000 for joint filers) in 2025. Disallowed losses are converted into net operating losses (NOLs) and carried forward by the hotel owners. The QBI deduction allows for a 20% deduction for income from pass-through entities, subject to additional limitations.
Key Takeaways:
- EBL limitations restrict the ability to offset income from other sources, such as investment income, with hotel-related losses. To fully leverage hotel-related operating losses, owners may consider careful planning with the guidance of a tax advisor.
- For owners or developers seeking additional capital, the QBI deduction incentivizes the formation of a pass-through entity for hotel ownership.
5. 1099 Reporting Thresholds Increased
The OBBBA raises the Form 1099-NEC and 1099-MISC reporting threshold from $600 to $2,000 starting in 2026 and indexed for inflation afterwards, reducing heavy compliance burdens for hotels that contract with vendors, entertainers, or maintenance providers.
How Forvis Mazars Can Help
The OBBBA presents both opportunities and risks for the hotel industry. While tax savings on tips, overtime, and capital investments are substantial, the compliance landscape is more complex. Our experienced professionals at Forvis Mazars can offer support in navigating these changes. Whether it’s outsourced accounting services, process improvement, or long-range planning, we can help you prepare for what’s next. For more information, please reach out to our hospitality team and explore the related FORsights™ below.