Case Study: Cost Segregation Analysis for a Hotel in Lake Placid, NY

Narrative

In 2022, the owners of a hotel in Lake Placid, NY, embarked on a strategic tax planning initiative to enhance their investment. The property consists of a single five-story building encompassing various amenities designed to cater to a diverse range of guests. Originally constructed in 1981, the hotel features modernized facilities to ensure comfort and efficiency.

The building’s exterior is characterized by durable materials and large windows that offer scenic views of the surrounding area. Inside, the hotel is equipped with high-efficiency HVAC systems, contemporary lighting fixtures, and a range of recreational facilities. 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