Case Study: Cost Segregation Analysis for a Hotel in Temple Terrace, FL

Narrative

In 2023, a hotel property in Temple Terrace, Florida underwent a strategic cost segregation study to optimize tax benefits. The property consists of a six-story building encompassing 88,024 square feet, with 148 guest units. Originally constructed in 2000, the hotel was acquired in November 2023 for $19,582,760.

The building features modern amenities including a swimming pool, comprehensive HVAC systems, and various guest amenities. The property includes both interior and exterior improvements such as parking areas, landscaping, and site utilities. The study aimed to identify opportunities for accelerated depreciation through the reclassification of building components.strategy employed and its significant impact on the financial outlook of the farm.

Objective

The primary objective was to identify and reclassify qualifying components of the property into shorter recovery periods, maximizing tax benefits through accelerated depreciation. The analysis covered the building structure, land improvements, and personal property components.

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

The study identified the following allocations from the total depreciable basis of $15,882,760:

5-Year Class Life

Total Allocation: $3,083,494.07 Percentage: 19.41%

Components include:

• Electrical systems and specialized equipment
• Kitchen equipment and appliances
• Security and communications systems
• Carpeting and decorative finishes

15-Year Class Life

Total Allocation: $713,085.84 Percentage: 4.49%

Components include:

• Site improvements
• Paving and concrete work
• Landscaping
• Exterior lighting

39-Year Class Life

Total Allocation: $12,086,180.11 Percentage: 76.1%

Components include:

• Building structure
• Basic electrical and plumbing
• HVAC systems
• Interior walls and finishes

Class Life Details:

Summary

The cost segregation study resulted in significant tax savings opportunities through the reclassification of assets into shorter recovery periods. The analysis identified that 23.9% of the total depreciable basis could be moved to accelerated depreciation categories. For the 2023 tax year alone, this resulted in additional accumulated depreciation of $3,057,713.05 compared to straight-line depreciation under a 39-year recovery period.f agricultural real estate investments.