In addition to the potential tax benefits available to commercial property owners through meeting the requirements of §179D of the Energy Policy Act of 2005 and performing a cost segregation study (see our  blog post on this topic), hotel owners may benefit from additional tax strategies when planning energy efficiency projects. 

Effective Tax Strategies for Energy Efficiency in Hotel Properties

Hotel properties typically include numerous exterior features that may be eligible for 15-year depreciation, including some exterior concrete, possibly fencing, landscaping, asphalt and irrigation systems, among others.  Nonstructural elements throughout a hotel property such as cabinetry, countertops, millwork, wood wall coverings and vinyl floor coverings may often be reclassified to 5-year or 7-year depreciation.  A qualified professional can also look at the potential for equipment such as generators, telephone/data wiring, and certain plumbing systems to also be reclassified.

The hotel owner may also benefit from “abandoning” all five year assets prior to remodeling.  Individual assets being replaced may qualify for abandonment if they were never segregated in the accounting records of the business when the building was purchased.  If the books reflect just the large asset, such as “Building”, this means that the value of each individual asset is included in the value of the building.  Typically, the “Building” is being depreciated over 27.5 years for commercial residential or 39 years for commercial property.  These individual assets do have a value of their own, and when the time comes to replace them a tax deduction may be taken for the remaining value associated with those assets.

With the help of tax and engineering professionals, these strategies may reap significant benefits for hotel owners.  Additionally, commercial property owners should take advantage of the many federal, state and utility programs and incentives that may be applicable to your project.  There are a number of online resources available for research and information-gathering as energy efficient projects are being considered.