Published by AE Tax Advisors Team • 2025-03-28

Hotel Owner Saves $450,000 Across Three Properties With Cost Segregation

The Client

Victor and Lisa Okonkwo owned three hotel properties in the Southeast -- a 65-room hotel in Nashville ($4.2M), a 48-room boutique hotel in Savannah ($2.8M), and a 40-room property in Asheville ($2.1M). Combined annual revenue exceeded $3.2 million with net operating income of $890,000.

The Problem

All three hotels were being depreciated straight-line over 39 years, producing a combined annual depreciation of only $185,000. With nearly $900,000 in taxable operating income, the Okonkwos faced a federal tax bill exceeding $260,000. They had never been advised to explore cost segregation.

Our Strategy

We performed simultaneous cost segregation studies on all three properties. Hotels are ideal cost segregation candidates due to the high volume of personal property -- furniture, fixtures, equipment, decorative elements, and specialized systems. Across the three properties, we reclassified a combined $1.38 million into 5-year property, $420,000 into 7-year property, and $580,000 into 15-year land improvements. Total accelerated depreciation reached $2.38 million.

The Results

The massive accelerated depreciation wiped out the Okonkwos' taxable income entirely and created carryforward losses for future years. Their $260,000 tax bill was eliminated, and total Year 1 savings including state benefits reached $450,000. They used the capital to renovate 22 rooms at the Nashville property.

Key Takeaway

Hotel properties contain the highest concentration of short-lived assets of any commercial property type. When multiple hotels are studied simultaneously, the combined savings can be transformative for the owner's cash flow and reinvestment capacity.