179D for the Hospitality Sector

In the hospitality sector, the 179D tax deduction emerges as a vital incentive for modern, energy-efficient hotel designs, offering owners and developers significant savings on qualifying buildings that meet specific efficiency standards. From boutique inns to large franchises, this deduction can quickly add up to surprising tax savings, enhancing cash flow for reinvestments. At aecre consulting, our boutique firm uses our in-house expertise to optimize these for commercial projects, including niche hotel types. Let's examine how 179D fits hotels, starting with core requirements.

How Hotels Qualify for the 179D Deduction

Fundamentally, the 179D tax deduction targets energy efficiency in commercial buildings like hotels, requiring at least a 25 percent reduction in energy costs against the ASHRAE 90.1-2007 baseline for projects completed as of 2023 via lighting, HVAC, or envelope enhancements. Hotels are a shoe in here, making it accessible for various scales. The deduction applies in the placement-in-service year, with max rates rising yearly: up to $1.88 between 2006 and 2022, and up to $5.94 after 2023. For owners of older projects, value comes through a 481(a) adjustment via Form 3115, allowing retroactive claims even years later.

A standalone case shows the potential. Take a new-build 80,000-square-foot major brand hotel franchise placed in service in 2024. With efficient systems surpassing ASHRAE 90.1-2007, the owner claimed the max $5.65 per square foot, securing over $452,000 in deductions. This boosted profitability in a market favoring sustainable amenities, and at aecre consulting, we've facilitated similar certifications, modeling energy gains for seamless compliance.

179D Deduction Value for Hotel Portfolios

For portfolio owners, the cumulative impact shines. One hospitality developer client managed three properties: a 95,000-square-foot new build placed in service in 2025, qualifying for up to $5.81 per square foot and over $551,950; a 75,000-square-foot full renovation of a purchased hotel in 2022, hitting $1.88 per square foot for over $141,000; and a 110,000-square-foot new construction in 2020, at $1.80 per square foot yielding over $198,000. Total 179D value exceeded $891,000 across the trio, realized partly through 481(a) adjustments on Form 3115 for the older ones. This demonstrates how even slightly aged projects retain strong value, as efficiency upgrades from prior years qualify retroactively.

While 179D stands front and center, it pairs well with cost segregation benefits, reclassifying 15 to 30 percent of basis for faster depreciation. Our engineering-driven approach at aecre consulting integrates these, but the deduction's direct savings often lead the charge for hotel owners navigating occupancy fluctuations.

179D Tax Savings after the OBBBA

As of the end of 2025, commercial real estate trends highlighted hospitality's rebound, with developers emphasizing energy-efficient features to draw eco-conscious travelers amid rising utility costs. Hotels in tourist hubs adopted modern ASHRAE-compliant designs, blending luxury with sustainability. However, the One Big Beautiful Bill Act (OBBBA) sets a deadline: construction starts by June 30, 2026, qualify, tied to physical work or the 5 percent safe harbor. This spurred activity, yet 179D's history tempers concerns. Launched in 2005, it weathered multiple sunsets, extended via laws like the Tax Relief Act and Consolidated Appropriations Act, going permanent in 2020 and amplified by the 2022 Inflation Reduction Act. This pattern implies the June 30, 2026, cutoff might shift with advocacy.

Such endurance supports timely planning. Consider a 120,000-square-foot hotel at $28 million, qualifying in 2025 for over $697,200 at $5.81 per square foot. Or a 200,000-square-foot franchise with conditioned spaces, valued at $45 million, potentially deducting over $1,162,000. These reflect max scenarios with full efficiency, but partial systems like HVAC alone add meaningful value. I've discussed with owners how retrofits on 2022-era hotels, via 481(a) and Form 3115, recapture overlooked deductions without audits.

Secure your Hotel's 179D Deduction Now

Ultimately, 179D elevates hotel investments by incentivizing efficiency. Even projects from 2020 onward hold retroactive potential through 481(a) adjustments on Form 3115, making it a staple for owners. With OBBBA's timeline approaching, initiating by mid-2026 preserves access, but the incentive's resilient past suggests adaptability. For hotel stakeholders, these savings could redefine margins—ideal for sustainable growth.