With the biggest tax overhaul of 30 years now complete, there are several items within it that may be favorable to hoteliers and the hotel business, according to the experts. That’s great news as the new tax law is giving hoteliers additional tools from which to expand their businesses, protect their current investments, and secure their holdings when passing their holding to the next generation.
“From hotel operations, to our industry’s employees, to consumers enjoying their favorite travel destinations, tax reform enables further opportunity for financial growth and prosperity,” said Katherine Lugar, president and CEO of AHLA prior to the tax reform reformation vote regarding a study of tax reform benefits to the hotel business.
Here’s what you need to know to maximize opportunity with the new rules that took effect on January 1, 2018.
1031 Exchange: This longstanding piece of the tax code was under scrutiny, and its status was up for debate. Fortunately for hotel owners, this code was retained in the final bill since it’s essential for all hotel investors seeking to sell one hotel in a “like-kind” exchange for another hotel real estate purchase. According to AAHOA President & CEO Chip Rogers on the No Vacancy podcast, “Anybody that’s involved in the world real estate knows that is an incredible investment tool that allows you to buy and sell properties … by deferring the capital gains tax until you cash out,” said Rogers.
More Hotel Demand: With a tax burden reduction for businesses, and lowered taxes for potential customers, experts say it’ll increase demand for hotel rooms. According to an article by Tourism Economics’ Aran Ryan and STR’s Jan Freitag, “tax policy changes would drive increased demand at U.S. hotels, and corresponding gains in guest spending and tax revenue for local economies. These gains are expected to exceed those for the broader economy as both leisure and corporate travel more directly benefit from increased consumer and corporate spending,” they wrote. More demand, means increased opportunity to capture higher room rates. Added demand means more opportunity to push rates. The SkyTouch Hotel OS® features up to nine Best Available Rate (BAR) levels, as well as four demand types, and unlimited seasons. This provides hoteliers with a well-balanced approach to setting basic rates throughout the year which are easily adjustable to compensate for peak and shallow demand periods.
Business Expansion: According to the AHLA, higher demand means the need for more employees. Their analysis expects new employees and added shifts for existing employees to generate $22.3 billion in additional wages and salaries for U.S. workers over five years, the same as paying 94,700 employees for five years, the analysis noted. Added employees means more training time, and the need to dole out work hours more strategically. With the mobile ready SkyTouch Hotel OS, housekeeping staff, for example, will always know which rooms are occupied, which ones must be cleaned immediately and what rooms can be put back into service next. This saves time and worker hours. Plus, SkyTouch Technology’s hotel property management system, for example, is intuitive to operate, even for new employees. That means training is less complicated, lowering training time to as little two shifts for new employee orientation.
Generational Continuity: A major change in estate tax laws for 2018 doubles the threshold prior to taxing up to $11 million for individuals and $22 million for couples (the exact amount depends on the inflation adjustment, according to the Washington Post), through 2026. This is relevant to hoteliers because under the old rules, if the owner of two hotels valued at $5 million each died, and left those assets to family, living family members would have to sell one property to come up with the funds to pay the requisite taxes. Now, this is no longer necessary in a scenario such as this.
With so many changes taking place regarding 2018 tax requirements, we encourage everyone to seek out answers to specific questions with a tax professional of their choosing. Good luck finding success with the new rules and regulations designed to boost your bottom line.
