Case 7

Scenario

A group of investors purchased an old hotel for $8 million. The property was outdated, but the team planned to renovate and rebrand it.

Objective

Minimize upfront taxes by utilizing cost segregation for both the existing building and the planned renovations.

Solution

A cost segregation study was performed on both the original hotel structure and the planned renovations, which included upgrades to the interior, lighting, plumbing, and furniture. The study identified $2.2 million in short-lived assets (5, 7, and 15-year depreciation items).

Result

By identifying significant personal property components in the renovation, the hotel group was able to claim a first-year depreciation deduction of $750,000, resulting in tax savings of over $250,000 in the initial year.