Hotel Developer Realizes Huge Tax Savings

Limited Service Hotel Developer recovers over $3 million in unclaimed depreciation with the help of Paragon International.

Background

A southeastern hotel owner/developer had acquired, renovated, or built 18 limited service hotels over many years.

Challenge

Two locations had been acquired and renovated. The other two were ground up construction. Their accounting firm had classified costs the best they could. The total cost classified as building with a 39-year straight-line depreciation was about $18 million.

Solution

After hearing Paragon’s fixed asset experts speak at a lodging conference, the developer decided to do a pilot Cost Segregation study of four locations for comparison purposes.

Over 17% of the $18 million was reclassified to 5-year double declining balance property. In addition, $1.6 million was identified as disposed of during renovations but never written off. The net book value of those components was about $1 million.

Results

That year, the additional deduction completely offset the taxable income and no tax was due! The unused balance was carried back to the prior year and a refund check followed.

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