Tax Deductions: Application of §179D for Hotel Properties

By Marky Moore Founder, Capital Review Group | August 19, 2012

In today's economy, saving on operating costs has become an essential goal for hotel property owners. Many hotel owners are looking to integrate sustainability into construction or retrofitting existing properties to save on energy usage and costs. If planned and executed properly, energy efficient construction or modifications can not only save on operating costs, but may result in significant tax savings.

The Energy Policy Act of 2005 - known as §179D - includes a tax deduction for investments in "energy-efficient commercial building property" designed to measurably reduce the heating, cooling, water heating, and interior lighting energy cost of new or existing commercial buildings. This energy-efficient commercial building property must be placed into service between January 1, 2006 and December 31, 2013.

If you are a building owner or a tenant/lessee who has paid for energy efficient construction or improvement projects, you may be eligible for a tax deduction of up to $1.80 per square foot for improving the energy efficiency of your existing commercial building or designing and integrating high efficiency into new buildings. (Interestingly, for government owned buildings, the person primarily responsible for designing the building or project may be able to claim the deduction.)

To qualify for the full deduction (whole building), a hotel owner/building owner (or tenant) must make investments designed to reduce energy costs by 50% or more compared to an IRS predetermined baseline. Additionally, a partial deduction of $.60 per square foot is provided for building subsystems such as lighting, HVAC, hot water and building envelope. In order to qualify for the deduction, the taxpayer must receive a qualified third party energy efficiency certification.

Whole Building Design

Whole-building (integrated) design is a growing trend in green building that embraces the "big picture". This method of building or making improvements analyzes the way a building's systems complement and work together, rather than segregating components to make improvements individually. Whole-building design results in a more efficient design that maximizes energy efficiency and minimizes the building's impact on its environment. Whole-building integration is also a way to incorporate improvements to all facility subsystems that may allow the property to qualify for the full §179D deduction.

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Coming up in December 2018...

Hotel Law: New Administration - New Policies

In a business as large as a hotel and in a field as broad as the law, there are innumerable legal issues which affect every area of a hotel's operation. For a hotel, the primary legal focus includes their restaurant, bar, meeting, convention and spa areas of their business, as well as employee relations. Hotels are also expected to protect their guests from criminal harm and to ensure the confidentiality of their personal identity information. These are a few of the daily legal matters hotels are concerned with, but on a national scale, there are also a number of pressing issues that the industry at large must address. For example, with a new presidential administration, there could be new policies on minimum wage and overtime rules, and a revised standard for determining joint employer status. There could also be legal issues surrounding new immigration policies like the H-2B guest-worker program (used by some hotels and resorts for seasonal staffing), as well as the uncertain legal status of some employees who fall under the DACA program. There are also major legal implications surrounding the online gaming industry. With the growing popularity of internet gambling and daily fantasy sports betting, more traditional resort casinos are also seeking the legal right to offer online gambling. Finally, the legal status of home-sharing companies like Airbnb continues to make news. Local jurisdictions are still trying to determine how to regulate the short-term apartment rental market, and the outcome will have consequences for the hotel industry. The December issue of Hotel Business Review will examine these and other critical issues pertaining to hotel law and how some companies are adapting to them.