100% Bonus Depreciation Could Be Back—Here’s Why It Matters to Hotel Owners

By Erik Ransdell and Mike Annunziata

Strands Realty Group

May 20th, 2025

Hotel owners across California just got a potential windfall in the form of tax savings—if they act quickly and strategically. The proposed “One Big Beautiful Bill,” unveiled earlier this year, includes a game-changing provision: the full reinstatement of 100% bonus depreciation for qualified properties placed in service between January 19, 2025, and December 31, 2029.

While the term "bonus depreciation" might sound like a back-office accounting footnote, this policy could have a major impact on how—and when—hotels invest in renovations, brand upgrades, acquisitions, and more. At a time when rising interest rates, inflation, and operational costs are squeezing margins, this tool could be a crucial catalyst for growth.

Let’s break down what this means for hotel owners and investors—and how to make the most of it.

What Is Bonus Depreciation? A Refresher

Bonus depreciation allows businesses to immediately deduct a significant percentage of the cost of certain qualified assets—think furniture, fixtures, security systems, and select building improvements—rather than writing them off over a period of several years. Under the Tax Cuts and Jobs Act (TCJA) of 2017, this bonus was set at 100%, but it began phasing out in 2023 and was on track to sunset completely by 2027.

Now, the proposed bill would bring 100% bonus depreciation back—giving owners and investors a five-year window to write off entire asset purchases in year one. This includes both new and used properties, so acquisitions of existing hotels that require upgrades are also eligible.

Why It Matters for Hotels

The hotel industry is uniquely positioned to benefit from this change because of the sheer volume of tangible assets involved in running a property. From guest room furniture to commercial laundry machines to lobby renovations—these are exactly the kinds of expenses that qualify under bonus depreciation rules.

“When you’re running a full-service hotel, every year there’s something new that needs updating—carpet, lobby furniture, HVAC systems. The ability to expense those costs upfront rather than depreciating them over five to fifteen years can be the difference between making that upgrade now or waiting,” said Karen Miles, Tax Partner at a Los Angeles-based real estate advisory firm.

How It Works: Cost Segregation Is Key

For maximum impact, bonus depreciation should be paired with a cost segregation study. These engineering-based studies break down a building into individual components—think plumbing, cabling, interior finishes—and reclassify them into shorter useful lives, usually 5, 7, or 15 years. This allows the hotel owner to apply bonus depreciation to a larger portion of their total asset base.

Let’s take an example:

A hotelier acquires a 100-key property in Bakersfield for $10 million and spends $2 million on upgrades. Through a cost segregation study, $1.3 million of the upgrade is identified as eligible for bonus depreciation (think furniture, lighting, and select interior finishes). That $1.3 million can now be deducted in full in the year the project is completed.

The immediate tax deduction lowers taxable income, which reduces the overall tax bill—and in many cases, frees up cash to reinvest in the property or service debt.

The Cash Flow Boost Is Real

For independent owners and family-run hotels, cash flow is king. This policy can offer relief where it’s most needed.

“If you have a $1 million renovation planned and can expense most of it upfront, you may end up saving $300,000–$400,000 in taxes,” said Mark Weiss, a CPA specializing in hospitality real estate. “That’s capital you can immediately put back into operations, marketing, or even a second property.”

In addition to strengthening internal finances, bonus depreciation makes hotels more attractive to outside investors, especially those seeking near-term tax advantages.

Timing Is Everything

The bill sets a firm deadline: assets must be placed in service between January 19, 2025, and December 31, 2029. That means renovations, improvements, or acquisitions need to be strategically scheduled.

If you’re currently planning renovations—such as replacing HVAC systems, refreshing the lobby, or preparing for a brand conversion—it's crucial to schedule these projects so that qualifying assets are placed in service between January 19, 2025, and December 31, 2029. For acquisitions happening now, ensure that renovation and improvement timelines are aligned with this bonus depreciation window to maximize deductions.

State-Level Caution: California’s Position

While this is a federal tax benefit, it's important to note that California does not conform to federal bonus depreciation rules. That means these deductions won’t reduce state tax liability. However, for most owners, the federal tax savings alone are substantial enough to drive decision-making.

Make sure your CPA or tax advisor factors in both federal and state impacts before finalizing investment decisions.

Real Estate Investment Strategies Reimagined

This policy shift is already influencing how investors look at hospitality real estate deals. In a recent transaction involving a portfolio of select-service hotels in Central California, the buyer’s underwriting model factored in bonus depreciation savings of over $2 million across the portfolio—enough to offset 40% of the planned renovation costs.

In another instance, an owner in Orange County used bonus depreciation and cost segregation to reduce their federal tax liability by $1.1 million in a single tax year. That savings funded a pool area renovation that helped elevate the property to a boutique flag.

What the Industry Is Saying

"Tax strategies like bonus depreciation can be just as impactful as revenue management when it comes to profitability," said Linda Day Harrison, founder of The Broker List and longtime real estate analyst.

Echoing that sentiment, Zach Demuth, Global Head of Hotels Research at JLL, recently stated, “In a high-rate environment, any tool that improves cash flow and reduces tax drag is critical. Bonus depreciation, especially when paired with cost segregation, is a proven driver of return enhancement.”

Even beyond the tax world, industry leaders are starting to take note. “It gives us more flexibility to reinvest in the guest experience—whether that’s tech upgrades or enhanced design,” said Raj Singh, COO of a California-based boutique hotel group. “That directly affects RevPAR and repeat business.”

Depreciation Recapture: Know the Exit Costs

One important caveat is depreciation recapture. If you sell a property after claiming large depreciation deductions, the IRS may “recapture” those deductions and tax them as ordinary income, not capital gains.

This doesn’t negate the benefits, especially for long-term holders, but it does mean owners need to plan exits carefully. A well-structured 1031 exchange, where gains are reinvested into another qualifying property, can defer both capital gains and recapture taxes.

Who Should Pay Attention

• Independent Hotel Owners: If you’re self-managing or operating under a soft brand, you likely have full control over capital projects. Now’s the time to audit your property improvement needs.

• Family Offices: Investors looking for efficient tax planning and cash flow stability can use bonus depreciation to stabilize their portfolios.

• Developers & Value-Add Buyers: This change enhances the economics of repositioning deals and ground-up developments alike. Time your cost segregation studies and construction schedules around it.

• Operators Planning a Brand Switch: Whether you’re moving to a lifestyle flag or returning to independent status, bonus depreciation can ease the cost of transition.

  
  

Final Recommendations

1. Line Up Cost Segregation Early: Don’t wait until your CPA asks. Work with engineers and tax advisors during the budgeting phase to ensure asset classification is optimized.

2. Time Major CapEx Projects: If you’ve been deferring renovations due to cost, now is the time to revisit your property plan and align those projects with the 2025–2029 bonus window.

3. Rethink Exit Timelines: If you're within five years of a sale, talk with your financial team about how depreciation recapture will affect proceeds—and what strategies you can use to manage it.

4. Watch the Legislative Landscape: This is a temporary provision. Monitor whether future legislation extends or expands the benefit—and be prepared to adjust strategy accordingly.

Looking Ahead

The hospitality industry in California is resilient but navigating increasingly complex economic terrain. Between inflation, labor costs, and shifting travel patterns, every opportunity to preserve capital and reinvest wisely should be taken seriously.

Bonus depreciation isn’t a magic wand—but for hotel owners who are already disciplined, growth-focused, and strategically aligned—it’s a rare tailwind.

Conclusion

We believe this policy shift represents more than a tax break. It’s a signal that hospitality investment remains a national priority—and that well-prepared owners and operators can thrive, even in uncertain times.