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Industry tax guide

Hotels and hospitality tax and accounting

Tax planning for properties that renovate on a brand's schedule.

Hotels & Hospitality business environment

Hotel owners and operators run a real estate business and a service business at once. Brands require property improvement plans every few years, rooms need new furniture and fixtures, and staff are paid partly in tips.

That mix creates more short-lived property than most buildings have, a steady stream of repair-versus-improvement decisions, and payroll credits for hotel restaurants and bars.

Compared with a general business

What makes taxes different for hotels and hospitality

Occupancy and lodging taxes

Hotels collect state and local occupancy taxes, often several per stay, and remit them on their own schedules.

Brand-required renovations

Property improvement plans arrive on the brand's schedule, creating recurring repair-versus-improvement decisions.

Tipped food and beverage staff

Restaurant, bar and banquet staff bring tip reporting, allocated tips and the FICA tip credit.

Management agreements

Owners and operators split fees, reserves and FF&E funds under management agreements that affect who deducts what.

The rules in detail

Tax rules for hotels and hospitality

Cost segregation on hotel property

Furniture, fixtures and equipment, carpeting, specialty lighting, pools and parking are 5-, 7- and 15-year property rather than part of a 39-year building. With 100% bonus depreciation for property acquired after January 19, 2025, those components can be deducted in the first year.

Brand renovations: Repair or improvement

A property improvement plan mixes replacements, cosmetic work and new systems. The tangible property rules decide which pieces are deductible repairs and which must be capitalized, and partial disposition rules let you write off the remaining value of what you replace.

Tip credit for food and beverage staff

The FICA tip credit lets employers claim an income tax credit for the employer Social Security and Medicare taxes paid on tips above the federal minimum wage. It applies to food and beverage service in hotel restaurants, bars and room service.

Planning moves

Ways to save tax in hotels and hospitality

  1. Cost segregation at purchase or renovation

    FF&E, site work and specialty systems depreciate over 5, 7 and 15 years instead of 39.

  2. 100% bonus depreciation on short-lived property

    Property acquired after January 19, 2025 can be deducted in the first year.

  3. Write off replaced components

    Partial dispositions deduct the remaining value of what a renovation removes.

  4. Claim the FICA tip credit

    Employer taxes on food and beverage tips become an income tax credit on Form 8846.

  5. Deduct renovation work that qualifies as repairs

    Each property improvement plan is split into repairs and improvements.

  6. Use the FF&E reserve efficiently

    Reserve deposits are tracked so deductions follow actual spending.

Working with OICPA

How we help

Service

Segregate the building and site

A study that separates FF&E, site improvements and building systems, coordinated with your acquisition or renovation.

Cost Segregation Coordination
Service

Split each renovation invoice

Repairs, improvements and retirements identified line by line before the property improvement plan is booked.

Property-Level Accounting
Service

Payroll for tipped staff

Tip reporting, allocated tips and the Form 8846 credit handled in payroll.

Payroll Services

Bookkeeping and reporting

The accounting behind the tax work

Reconcile booking receipts and departmental margins, then model the cash impact of seasonal demand and planned improvements.

The operating challenge

Room receipts, booking commissions, food service, payroll, and renovation costs may sit in separate systems while ownership needs one reliable result.

The records that matter

Property management reports, booking settlements, departmental expenses, payroll, and renovation invoices give the review a practical starting point. We identify missing information before recommending changes.

What you can expect

  • A prioritized review of the industry-specific accounting issues above
  • A tailored reporting and document checklist based on your operating records
  • An agreed action plan connecting financial reporting, tax deadlines, and specialist coordination

Frequently asked questions

Is cost segregation worth it for a smaller hotel?

Usually. Hotels carry a high share of short-lived property, so even limited-service properties often see a large first-year deduction. We estimate it before you commit to a study.

Can we deduct a brand-required renovation?

Part of it in most cases. Replacing worn finishes and furniture is often deductible or fast-depreciating, while new systems are capitalized. Writing off the old assets you remove adds to the deduction.

Do occupancy taxes affect income tax?

Occupancy taxes you collect from guests are not your income, but they must be reported and remitted to each city or county on time. We keep them separate in the books.

Related articles

References

  1. Publication 946 (2025), How To Depreciate PropertyInternal Revenue Service
  2. Tangible property final regulationsInternal Revenue Service
  3. About Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee TipsInternal Revenue Service
  4. 26 U.S. Code § 45B: Credit for employer social security taxes paid on employee tipsLegal Information Institute, Cornell Law School

Rules reflect federal tax law as of November 2026.