Case Study: Cost Segregation Analysis for a Hotel in Appleton, Wisconsin

Narrative

In 2024, the owners of a hotel in Appleton, Wisconsin, undertook strategic tax planning to enhance their investment. The property consists of two 4-story buildings encompassing 19,227 square feet each. Originally constructed in 2005, the hotel features a variety of guest rooms designed to cater to different travelers.

The building's exterior showcases modern architectural elements, including a durable exterior finish and large windows. The interior is well-appointed, featuring amenities such as high-efficiency HVAC systems, water heaters, and contemporary lighting fixtures. The property also includes recreational facilities, including a pool and hot tub.

The owners engaged Engineered Tax Services (ETS) to perform a comprehensive cost segregation study of the property. This study aimed to identify and reclassify specific assets, enabling the acceleration of depreciation and optimizing tax benefits. This case study outlines the cost segregation strategy employed and its significant impact on the financial outlook of the property.

Objective

The primary objective of the cost segregation study was to identify and classify the hotel's assets to optimize the owners' tax savings. By breaking down and reallocating components into shorter depreciation life categories, ETS aimed to provide both immediate and long-term financial benefits through accelerated depreciation.

Methodology

ETS employed a detailed, engineering-based approach, which included:

1. Physical Inspection: conducting a thorough site visit to identify and photograph the property's components
2. Document Review: examining architectural plans, construction documents and accounting records
3. Cost Analysis: applying engineering principles to allocate costs to specific asset classifications
4. Depreciation Calculation: calculating depreciation using IRS-accepted methods such as the Modified Accelerated Cost Recovery System (MACRS)

Asset Allocation