Putting together a Property Improvement Plan (PIP) for your boutique hotel? Timing is on your side, because 100% bonus depreciation is back and permanent under current law. Combined with Section 179’s increased expensing limits, a large amount of your renovation spend may be deductible in the year placed in service.
This is a reason to talk to your advisor before you act on the PIP, so you’re structuring the terms properly for the deduction you might be entitled to. These two separate rules apply at the same time, and this is what independent hotel owners should know before the work begins.
Why Does Bonus Depreciation Matter for a PIP?
A property improvement plan is a mix of line items on a depreciation schedule. New furniture, mattresses, kitchen equipment, technology, and renovation work can be treated differently for tax purposes. Lumping these categories together may lead to missing deductions.
A look at the specific categories:
- Furniture, Fixtures, and Equipment (FF&E): Short-lived property under IRS depreciation rules, which means both Section 179 and bonus depreciation likely apply for items like room furniture, lobby seating, and kitchen equipment.
- Qualified Improvement Property (QIP): Most interior renovations to non-residential parts of your building. QIP is 15-year property and can qualify for both bonus depreciation and Section 179. It doesn’t include building enlargements, elevators and escalators, or work on the building’s internal structural framework.
- Structural Building Costs: The building itself is generally depreciated over 39 years and doesn’t qualify for bonus depreciation. Certain improvements, like roofs, HVAC, fire protection, and security systems, may still qualify for Section 179.
Paying attention to bonus depreciation can change what you’re able to deduct. Eligible short-lived assets in your PIP may be fully deductible in the year they’re placed in service, but only if they’re identified and classified correctly.
How Bonus Depreciation for Hotels Changed
Hotel owners planning projects are working under two rule changes from the One Big Beautiful Bill Act (OBBBA) in July 2025, which are changing this year’s plans.
To start, bonus depreciation is back at 100%. For years, it followed a step-down schedule, but the OBBBA reinstatement is permanent. This means that qualifying property placed in service now gets full first-year bonus depreciation with no expiration date and no scheduled phase-down.
The second rule is the increase to Section 179 limits. For tax years beginning in 2026, a business can expense up to $2,560,000 in qualifying purchases, but that limit begins phasing out once property placed in service passes $4,090,000. For most independent hotels, even a sizable FF&E refresh won’t come close to that phase-out range. Keep in mind that Section 179 can’t exceed your business’s taxable income for the year, while bonus depreciation has no dollar maximum or income limit.
These two rules let you choose which assets to expense under Section 179 and how much, then apply bonus depreciation to what’s left. A hotel owner funding a PIP will often use both rules in the same tax year.
State rules vary; some states have adapted to federal bonus depreciation, while others haven’t. Your state return will depreciate these assets on a separate schedule. Meeting with your advisor can help you compare the federal and state numbers.
Where Does Cost Segregation Fit In?
A cost segregation study takes a building or a major renovation and breaks it into its component parts. It identifies what can be depreciated over five, seven, or 15 years instead of the standard 39-year schedule that most hotel real estate defaults to. Anything reclassified into a shorter life may qualify for 100% bonus depreciation, and in some cases Section 179.
For a hotel owner in the middle of a PIP, a study can be worth a close look. Potential benefits include:
- Renovation Cycles: A study generally makes it easier to write off the remaining value of items removed and replaced in future PIPs by documenting the value of individual building components.
- Cash Flow: Moving deductions into earlier years can free up cash for reinvestment or debt service.
- Permanent 100% Rate: Current tax rules maintain 100% bonus depreciation, and reclassified assets can receive the full first-year rate without a phase-down.
For example, a soft goods and FF&E package that looks straightforward often includes building-system components, like electrical work tied to new equipment or plumbing changes for a renovated bathroom layout. A cost segregation study points out the pieces that qualify for faster write-offs.
A study is easiest to coordinate when it’s planned alongside the project, before your return is filed. Even if your last renovation is already done, it’s worth asking. A look-back study may still let you catch up on depreciation from an earlier year. It depends on the size of your project and your tax situation, so it’s a good conversation to have early.
Taking the full deduction in the first year is a one-year benefit rather than spreading the deductions over a longer period, which could lead to higher taxes in subsequent years. Determining which plan is best for your property is worth discussing with your advisor.
How to Understand Order of Operations
A deduction may be harder to capture if you wait until tax season than if you categorize and plan it from the start.
This sequence matters as much as the tax rules:
- Scope the project before you sign anything. Get a category breakdown from your general contractor or PIP vendor. FF&E, QIP, and structural work all need to be identified separately.
- Contact your CPA before the purchase orders go out. Depreciation elections and cost segregation studies work best when they’re planned alongside the project.
- Decide how to split Section 179 and bonus depreciation. Factors like your taxable income for the year and how your state treats each deduction can affect whether you take the full deduction now or spread some of it into future years.
- Keep documentation organized by category. Separate FF&E, QIP, and structural as the invoices come in rather than lumping them together and risking misclassification.
While these steps may not take too much extra time on their own, it’s harder to sort out this deduction when the return is due.
How MBE CPAs Can Help
With bonus depreciation now permanent, you no longer have to struggle with timing a renovation around a shrinking deduction schedule. The higher 2026 Section 179 limits give independent hotel owners more room to expense a PIP or FF&E cycle without reaching the phase-out.
Together, they make the tax side of a renovation decision simpler than it has been in years, as long as the project is structured correctly from the start.
If you’re planning a PIP, a renovation, or an FF&E replacement cycle in the next year, talk to your MBE CPAs advisor before the purchase orders go out. We’ll help you sort what qualifies, decide how to split Section 179 and bonus depreciation, and weigh whether a cost segregation study is worth doing for your specific project.