A Nashville boutique hotel operator with two properties had been depreciating everything over 39 years. A cost segregation study identified $1.87M in components eligible for accelerated depreciation.
01The Situation
The operator had acquired both Nashville boutique hotels over four years. Both had undergone significant renovation, furniture, fixtures, HVAC, specialty lighting, and restaurant equipment across the two properties. All of it had been lumped into a single real estate depreciation schedule at 39 years.
A real estate attorney mentioned cost segregation during a closing on an adjacent property. The hotel operator called us to assess whether a study made sense for his two hotels.
02What We Did
We commissioned a study for both properties simultaneously, more cost-effective than separately. The study identified $1.87M in components eligible for 5-year, 7-year, and 15-year depreciation. The study also identified $312K in land improvements, parking, landscaping, exterior lighting, previously categorized as non-depreciable land. Under proper classification, land improvements depreciate over 15 years.
Year-one additional depreciation across all categories: $227,000. At the operator's effective combined rate of 39.8%, the year-one tax saving was $124K total.
03Client Impact
The operator said he had four years of depreciation he could have taken faster and did not. The ongoing $28K annual credit from correct classification is the lasting benefit. Every new hotel acquisition now includes a cost segregation study.
Breakdown
| Component | Total Value | Standard Life | Accelerated Life | Yr-1 Extra Depr. | Tax Saving |
|---|---|---|---|---|---|
| Furniture & Fixtures | $684,000 | 39 yrs | 7 yrs | $80,400 | $32,160 |
| HVAC Systems | $428,000 | 39 yrs | 15 yrs | $42,800 | $17,120 |
| Specialty Lighting | $186,000 | 39 yrs | 5 yrs | $31,240 | $12,496 |
| Land Improvements | $284,000 | Not depr. | 15 yrs | $28,400 | $11,360 |
| Restaurant Equipment | $162,000 | 39 yrs | 7 yrs | $21,600 | $8,640 |
| IT & AV | $124,000 | 39 yrs | 5 yrs | $22,560 | $9,024 |
| TOTAL | $1,868,000 | — | Various | $227,000 extra | $90,800+ |
What changed
Cost Segregation Study Across Both Properties
$1.87M in components reclassified from 39-year to 5, 7, and 15-year schedules.
$124K Year-One Tax Saving
$90K from accelerated depreciation plus $34K from land improvement reclassification.
$284K Projected 10-Year Advantage
Cumulative tax advantage of accelerated vs standard depreciation over 10 years.
Study Commissioned for Next Acquisition
Operator now includes cost segregation in standard acquisition process for every new property.
The operator said he had four years of depreciation he could have taken faster and did not. The ongoing $28K annual credit from correct classification is the lasting benefit. Every new hotel acquisition now includes a cost segregation study.
Want results like these?
Book a free consultation — we'll tell you exactly what we'd do.