$720K Reclassified on a Full-Service Hotel in Colorado
A returning USTAGI client had owned this full-service hotel in Colorado since November 2019. Built in 1995, it cost $3.9M, with $1.07M allocated to land and a depreciable basis of $2.83M. For six years, the whole building had been depreciated over 39 years.
- Purchase price
- $3.9M
- Depreciable basis
- $2.83M
- Reclassified
- $720K
- Share of basis
- 25%
The property and the result
In 2026 the owner ordered a look-back study for the 2025 tax year. After an on-site inspection by USTAGI, the study moved $615K into 5-year property and $105K into 15-year property, a total of $720K or 25% of the basis.
Hotels carry much of their cost in guest room finishes, lighting, kitchen and laundry connections, and communications systems, which is why the 5-year share is large here. The owner can claim depreciation missed since 2019 on the 2025 return, without amending past returns.
How the purchase price was allocated
| Category | Amount | Share of price |
|---|---|---|
| Land (not depreciable) | $1.07M | 27% |
| 5-year property | $615K | 16% |
| 15-year property | $105K | 3% |
| Remaining 39-year building basis | $2.11M | 54% |
How it compares: this study reclassified 25% of the depreciable basis. Across 170 commercial studies USTAGI has completed, the median is 27.7%.
How the study was done
- Study type
- Detailed engineering study
- Inspection
- USTAGI on-site inspection
- Cost data
- RSMeans construction cost data
- Timing
- Look-back study for the 2025 tax year
- Placed in service
- November 2019
- Depreciation before the study
- 39-year nonresidential
- Year built
- 1995
- Client
- Returning USTAGI client
What typically qualifies on a property like this
The study assigns each component of the building and site to its IRS recovery period. On a full-service hotel, these are the kinds of items that usually move off the 39-year schedule.
5-year property
- Guest room carpet, wall coverings and millwork
- Decorative lighting in rooms and public areas
- Kitchen, laundry and food service connections
- Telephone, data and security systems
- Front desk and lobby casework
15-year property
- Parking lots and drive aisles
- Pool and outdoor amenity areas
- Landscaping and site lighting
- Sidewalks, curbs and site signage
What this means at tax time
Because the property was placed in service in November 2019, the owner had been depreciating the entire building over 39 years. The study identified the components that belonged on 5- and 15-year schedules from the start.
Through a change in accounting method, generally filed on IRS Form 3115 with the 2025 return, the owner can claim the depreciation missed in earlier years as a single adjustment in the current year, without amending past returns.
The bonus depreciation rate that applies, if any, depends on when the property was acquired and placed in service, not on the year of the study. The owner's CPA applies the rules in effect for that date.
Questions about this case study
No. This hotel was placed in service in 2019 and studied for the 2025 tax year. A look-back study lets the owner catch up depreciation missed in earlier years through an accounting method change on the current return.
Generally no. The catch-up is usually claimed through IRS Form 3115, Application for Change in Accounting Method, filed with the current year's return. Your CPA confirms the filing for your situation.
The bonus depreciation rate, if any, depends on when the property was acquired and placed in service, not the year of the study. Your CPA applies the rules that were in effect for that date.
Guest room carpet, wall coverings, millwork, decorative lighting, kitchen and laundry connections, and phone, data and security systems all qualify as 5-year property, and hotels have a lot of them.
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Results shown are from a completed USTAGI cost segregation study and are not a guarantee of future results. The client is not named, the location is shown by state and amounts are rounded. “Reclassified” is the depreciable basis the study moved into 5, 7 and 15-year property; it is not a tax-savings figure. Outcomes depend on each property and each owner’s tax situation. Consult your tax advisor about your situation.