A Comfortable Hotel Experience
Madison SPECS's cost segregation team recently performed a comprehensive
engineering and tax assesment on a resort hotel, providing a substantial income
tax benefit.
THE SITUATION:
Madison SPECS was called in to perform a Cost Segregation study for a
seven-story, 328-room hotel located in New York's Catskills region. Comprising
270,000 square feet, the full-service hotel included a ballroom, dining and
catering facilities, a breakfast room, indoor pool and exercise facility. It was
constructed with a steel frame structure, stucco exterior walls, multiple
passenger elevators, and standard interior finishes and fixtures.
THE PROCESS:
Headed up by engineer Thomas Varney, Madison's team conducted a comprehensive
site tour of the hotel's interior and exterior. He compiled a full inventory of
the facility's furniture, fixtures and equipment, analyzed the buildings
blueprints and architectural plans, examined a sampling of the hotel rooms as
well as the various common areas and facilities, and took representative
photographs. With nearly ten years of experience performing cost
segregation studies for hotels and motels, Mr. Varney was able to quickly
pinpoint numerous assets eligible for accelerated depreciation. Many hotel
owners are unaware of the considerable savings they can gain from cost seg
studies," advised Mr. Varney. "But these savings translate into improved cash
flow-it's more money in their pockets today."
Madison's expert cost and
accounting specialists then valued the hotel's assets eligible to be
reclassified and allocated them into the appropriate 5-, 15- and 39-year
"buckets," or tax categories, in accordance with current tax laws. Madison SPECS
presented the client with a comprehensive report including a detailed break-out
of the assets, detailed depreciation schedules for the client's CPA, tax
justifications, site photographs and other supporting documentation as outlined
in the IRS Audit Techniques Guide.
THE RESULTS:
- $1.1 million of fixed assets was reclassified to a 5-year tax depreciation
schedule
- $500,000 was reclassified to a 15-year schedule
- Of the hotel's
total building cost of $5.4 million, Madison SPECS was able to successfully
reclassify a total of $1.6 million to shorter tax depreciation schedules,
resulting in 30% of the assets being reclassified to shorter asset lives. Net
present value income tax benefit of $318,547.
