Illustrative Hotel Property
A hypothetical limited-service hotel used to separate 39-year building, 5-year guest-room furniture, and 15-year surface parking. Educational information, not tax advice.
Educational information, not tax advice.
Updated 2026-10-14
Assumptions
- Educational information, not tax advice.
- Assume transient hotel occupancy, not residential rental. More than half the units are used on a transient basis.
- Assume this is a limited-service hotel, not a casino. Casino-specific 7-year rows are not copied onto the rooms.
- Assume a purchased going concern. If a written §1060 allocation exists, Peco Foods is a risk to read before subdividing.
- Any dollar figures below are invented for arithmetic only. They are not a typical mix and not a client result.
Key takeaways
- Hotels are not 27.5-year residential rental property. Transient lodging is excluded from that definition.
- Guest-room furniture is 5-year in the IRS hotel/casino matrix; guest-room outlets remain building.
- Interior pools attached to the building stay with the building in that matrix; the surface lot is a 15-year candidate.
- Hotel rows live inside the casino chapter of Publication 5653. They are examiner guidance, not a statute.
A 90-key limited-service hotel is placed in service after a purchase. Occupancy is transient, so the building is 39-year nonresidential real property under §168(e)(2). Units in a hotel, motel, or other establishment where more than half the units are used on a transient basis are not dwelling units for the residential rental test. Publication 527 and the statute both draw that line. Suppose, for arithmetic only, a $8 million contract price with $1.5 million assigned to land. The remaining $6.5 million is invented depreciable basis. No reclass share is claimed.
The FF&E inventory — beds, dressers, televisions — is listed separately as 5-year property, consistent with the casino/hotel matrix. The surface lot is 15-year. Guest-room outlets remain building. No casino-specific 7-year rows are used, because this is not a gaming property.
Order of operations: land, building class (39-year, not 27.5), site work, personal-property candidates from the FF&E list and matrix rows that match the facts, inspection, reconciliation, CPA filing on Form 4562. If the hotel was already on the books as one 39-year asset, a later study is generally a method-change discussion, not a set of amended returns.
Matrix caution
Hotel rows live inside the casino chapter of Publication 5653. They are examiner guidance for hotel-like spaces, not a statute. There is no standalone non-casino hotel matrix. If a return follows a matrix row, examiners are directed not to adjust that categorization and life — but each matrix says it reflects that industry’s general facts and may not apply elsewhere.
Guest-room furniture — beds, dressers, armoires — is listed as §1245, class 57.0, 5-year property in that table. Guest-room general-use outlets, including bath GFI, are building. Interior pools attached to the building stay with the building; exterior pools are 15-year in that matrix. Pylon sign structures are 15-year; sign faces are 5-year. Copy only rows that match what was inspected.
What not to import from the casino rows
Emergency generators for life-safety are building in that matrix; generators for casino operations are 7-year recreation property (class 79.0). Gaming-area electrical and removable casino-floor carpet use 7-year class 79.0. Those casino-specific rows should not be copied onto a limited-service hotel without facts. “Short-life” is not one number.
Decorative lighting that is not the primary light source can be personal property on its own facts; corridor and stair lighting that is the building’s general illumination stays with the building under Treas. Reg. §1.48-1(e)(2). Shoney’s South involved decorative restaurant lighting and is not a hotel holding. Present lighting outcomes as fact-specific.
Purchase file and Peco Foods
Hotel purchases often include a going-concern allocation among real property, FF&E, and intangibles. If that writing is a §1060 allocation, Peco Foods is the warning that a later study cannot contradict it. The ATG says the reach beyond §1060 is unclear. Read the purchase agreement before treating the FF&E list as open for reclass. Not every hotel closing contains such a writing.
Separately acquired FF&E billed after closing should not be double-counted in the building takeoff. The audit guide lists reconciliation and avoidance of double-counting as quality elements.
Inspection and records
Walk a sample of rooms, the lobby, the breakfast area, laundry, and the lot. Photograph furniture, casegoods, and whether floor covering is strippable. Measure parking. Interview the general manager about what the brand-required FF&E package included versus what is building. Drawings of a prior renovation, if they exist, are candidates, not proof of what is still installed.
CostSeg SI’s proposed extraction stage is designed to read those sheets; a person still confirms what was built. Document extraction, RSMeans pricing, and engineer certification are not claimed here as operational products or as IRS-approved credentials. The ATG states the IRS has not established preparer qualifications or a standard report format.
Reconciliation, bonus, and Form 4562
Invented $6.5 million depreciable basis is the ceiling for all classes combined. Furniture invoices that are already in the buyer’s FF&E account should be tied to those accounts, not scaled out of the building residual. Land stays out. The CPA applies half-year or mid-quarter conventions to personal property and mid-month to the building.
Used FF&E can be bonus-eligible only if the §168(k) used-property tests are met, as of Notice 2026-11. This illustration does not compute a taxpayer’s tax. Educational information, not tax advice.
Sources
- 1IRS Publication 5653 — Cost Segregation Audit Techniques Guide (rev. 2-2025)(opens in a new tab)
Written for IRS examiners. The guide states it is not an official pronouncement of law and cannot be cited as authority. It predates the July 2025 law.
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