How the New Tax Law Affects Property Expensing for Hospitality Businesses
The Tax Cuts and Jobs Act made huge changes to the tax code, and one of the biggest benefits could bring huge savings to hospitality business owners. They may be able to write off certain property as a 100% deductible expense immediately after it goes into service. The rules surrounding this bonus depreciation percentage vary, but the ramifications seem to be quite favorable to hospitality business owners. Since many assets can be purchased through hospitality financing and deducted immediately — along with the interest from any business loans — business owners have a strong incentive to consider eligible property investments that lesson their tax burden. If this all sounds confusing, let’s break it down.
What Hospitality Assets Qualify for the 100% Bonus Depreciation?
The subset of assets that qualifies for a 100% bonus depreciation tax deduction changed slightly compared to before the major tax bill’s passage. Still on the list are assets considered “personal property” that have a regular depreciation life of 20 years or less. This can possibly include assets like furniture, computers, doors, service equipment and other business items with a short lifespan. Previously, these short lifespan items had to be new, but they can now be used if they are “new” to the business owner — i.e. they have never been placed in service before by them. The property also must have been put in service after September 27, 2017, which means that you may be able to deduct a significant amount of your equipment and furnishing expenses accrued during Q4 2017. The 100% bonus depreciation expires on Jan 1, 2023, when it lowers to 80%. Other property eligible for deduction includes computer software, and water utility property that is not directly related to wastewater collection and diversion. Unfortunately, an oversight during the hasty drafting of the Tax Cuts and Jobs Act omitted the reference to “qualified improvement property,” meaning that some material improvements may no longer qualify as bonus deductible remodeling expenses. Many expect the rules surrounding qualified improvement property to be clarified or the laws to be changed within the coming months. For more information and examples on the changes to the tax law and what items may be eligible for a 100% bonus depreciation, take a look at this in-depth article courtesy of tax expert Anthony Nitti.
Planning Ahead for Taxes, Expenses and Hospitality Financing in the New Year
The 100% bonus depreciation deduction can be a windfall for newly purchased hospitality properties or older properties planning on conducting extensive renovations. If your hotel is dated, 2018 can be the perfect time to start planning improvements through hospitality financing. You can recoup your investment through boosted bookings, greater market share, and advantageous deductions like the one described above. Click here to receive a free, no-obligation quote for hospitality financing in as little as 48 hours. You could qualify for a low-interest loan with minimal documentation and have your funds in just 5 business days!