Hotel Tax Deductions: FF&E, OTA Commissions, Amenities, and What Most Owners Miss

A hotel’s tax return has more moving parts than almost any other property-based business: furniture and fixtures that turn over every five to seven years, a commission line to Expedia and Booking.com that can run 15% to 25% of room revenue, guest amenities that range from shampoo to a shuttle van, and a constant stream of maintenance and renovation spending that has to be sorted into repairs (deductible now) versus capital improvements (depreciated over time). Most of these costs are deductible in some form. The question is which deduction, in which year, and under which method, and that is where owners either capture the full benefit or leave money on the table because a bookkeeper coded a lobby renovation the same way as a light bulb.

How is hotel furniture and equipment depreciated?

FF&E is the largest recurring capital category for a hotel and it depreciates on a schedule set by MACRS asset class, not by how long the item actually lasts in a guest room. Guest room furniture and case goods fall into the 7-year class under Asset Class 57.0, or into 5-year property when a cost segregation study classifies them as furniture and fixtures tied to hotel operations specifically. Section 179 and 100% bonus depreciation (permanent under the One Big Beautiful Bill Act) let most owners deduct the full cost in year one.

• Without a cost segregation study, most hotel FF&E defaults to 7-year MACRS. The difference between 5-year and 7-year compounds across dozens of line items in a full FF&E package.
• Kitchen and laundry equipment, front desk systems, and AV equipment in meeting space typically fall into 5-year property. PTACs in individual guest rooms are often treated as personal property with a short recovery period, one of the most valuable cost segregation findings.
• Linens, towels, and bedding bought in bulk and replaced on a rolling basis are properly treated as supplies expense, deducted in full when purchased. Higher-cost linen programs or a large-scale buildout can be capitalized and depreciated instead.
• Section 179 lets an owner expense up to $2,500,000 (2025 and 2026 under the OBBBA; indexing begins 2027) of qualifying FF&E. Bonus depreciation under IRC 168(k) has no dollar cap and applies automatically unless the owner elects out by asset class.

Are OTA commissions to Expedia and Booking.com deductible?

Yes, commissions paid to online travel agencies are fully deductible as an ordinary and necessary business expense under IRC 162, with no special limitation or phase-out. The confusion is not about deductibility but about how revenue and expense get reported: report gross room revenue as income and the OTA commission (typically 15% to 25% of the room rate) as a separate deductible expense.

• Under the agency model (Expedia’s traditional program, Booking.com), the guest pays the hotel directly and the hotel pays a commission. Under the merchant model, the OTA collects and remits the net amount. Either way, the correct treatment is gross reporting with a separate commission expense line.
• Netting the commission against revenue understates both revenue and expenses. While net income stays the same, it distorts RevPAR reporting, loan covenants, franchise royalty calculations, and creates mismatches against 1099-K figures.
• Traditional travel agent commissions and loyalty program costs (Marriott Bonvoy, Hilton Honors, IHG One Rewards per-stay fees) are also deductible as ordinary marketing and selling expenses.
• A monthly reconciliation tying gross room revenue by channel against the commission expense recorded for that channel catches gaps before they compound across a full year.

What guest amenities and supplies can hotels deduct?

Nearly everything an owner spends to make a stay work is deductible, and the list is longer than most owners track. Toiletries, in-room coffee and tea, bottled water, minibar stock, and breakfast service are ordinary operating expenses. Wi-Fi infrastructure is deductible, with hardware depreciated as equipment and the monthly service fee expensed as incurred.

• Pool and fitness center maintenance, landscaping, and pest control are all deductible but commonly under-tracked because they get lumped into a single “building maintenance” line.
• A complimentary shuttle is deductible across every cost layer: the vehicle (5-year asset, Section 179 and bonus eligible), fuel, insurance, and driver wages or contracted service cost.
• Credit card processing fees (2% to 3.5% of card volume) are one of the largest expense lines owners forget sits separate from the OTA commission line.
• Wi-Fi access points, switches, and cabling are depreciable equipment (5- or 7-year). The recurring internet contract is expensed. A vendor invoice bundling hardware with service needs to be split before booking.

When does hotel maintenance become a capital improvement?

The rule comes from the repair regulations under Treas. Reg. 1.263(a)-3, which asks whether the work is a betterment, a restoration, or an adaptation to a new use. Repainting a guest room or fixing a leaking faucet is routine maintenance, deducted in full. Gutting a lobby or replacing all HVAC units building-wide is a capital improvement, depreciated. The dollar amount alone does not settle the question.

• De minimis safe harbor: expense items up to $5,000 per invoice or item (with an applicable financial statement) or $2,500 (without one), with no capitalization analysis, as long as the policy is documented in writing before the tax year begins.
• Routine maintenance safe harbor: allows recurring activities expected to be performed more than once during the property’s class life (re-carpeting corridors on a cycle, repainting on a schedule) to be deducted even when the total cost is substantial.
• Small taxpayer safe harbor: available for buildings with an unadjusted basis of $1,000,000 or less, allowing expensing up to the lesser of 2% of basis or $10,000 per building per year. Most hotel properties exceed the basis limit.
• A full guest room refresh is typically capitalized as a betterment because it materially improves the property beyond its original condition, even though each line item might look like repair work in isolation. The regulation evaluates the project as a whole.

What’s qualified improvement property for hotels?

QIP is any improvement to the interior of a nonresidential building after it was first placed in service, excluding elevators, escalators, internal structural framework, and enlargements. For a hotel, it covers lobby renovations, corridor upgrades, meeting space buildouts, and restaurant or bar work inside the hotel. QIP gets a 15-year MACRS recovery period and qualifies for 100% bonus depreciation, making it one of the highest-value planning items for any interior renovation.

• A hotel spending $800,000 on lobby and corridor work can deduct the full amount in the year placed in service rather than depreciating it over 39 years. This benefit is frequently missed when invoices get coded to a generic “building improvements” account.
• Exterior work (roof, facade, parking structure, building envelope) does not qualify regardless of other classification. Enlargements (adding a wing or floors) do not qualify.
• The property must be nonresidential, which a hotel clearly is, a distinction that matters for extended-stay or residential-style components structured as residential rental property.

How is a franchise PIP renovation classified for tax?

A Property Improvement Plan is the renovation scope a franchisor requires (typically every 5 to 7 years) to keep the flag, and it is one of the most inconsistently coded capital events a hotel owner faces. The PIP is a business requirement, not a tax category, and every dollar still gets sorted into repair, capital improvement, QIP-eligible interior work, or new FF&E.

• A typical PIP invoice bundles guest room soft goods (FF&E, bonus eligible), corridor and lobby finishes (QIP, 15-year with bonus), exterior signage and facade (39-year, no bonus), and sometimes a building system replacement.
• Treating the entire PIP as one lump “renovation” asset on a 39-year schedule is the most common way owners under-claim first-year depreciation.
• Getting the contractor’s schedule of values broken out by category before the invoice is booked captures the bonus depreciation in the completion year rather than losing it to a decades-long recovery period.

What hotel deductions do owners commonly miss?

Several categories appear in nearly every hotel’s operating budget but get missed or under-claimed with enough regularity to call out by name. PMS platforms, channel manager software, and revenue management tools are deductible as software expense or amortized over the license term. Setup and integration fees for a new PMS are commonly missed because they get buried in a one-time IT invoice.

• Key card systems (encoders, door locks, access control software) are depreciable equipment, 5- or 7-year property. A full-property lock replacement often gets expensed as a single “security” line item without breaking out hardware from labor.
• Laundry equipment (commercial washers and dryers) depreciates as 5- to 7-year property with Section 179 and bonus. The ongoing laundry cost (outside service or in-house utilities and detergent) is a fully deductible operating expense.
• Employee uniforms, including initial purchase, replacement, and laundering or dry cleaning the hotel pays for, are deductible.
• Smaller categories that get lost inside “other operating expense”: insurance premiums, bank and merchant fees, background checks, association dues, and rate-shopping tool subscriptions.

Are occupancy taxes deductible on my hotel’s tax return?

No, and this is the single most misunderstood item on a hotel’s tax return. Transient occupancy tax, hotel room tax, and lodging tax is collected from the guest and remitted to the jurisdiction. That money was never the hotel’s income, so there is no deduction to claim. A hotel booking $200 for a room and collecting $24 in occupancy tax recognizes $200 in revenue, not $224.

• The error shows up when a PMS export dumps the full guest charge (tax included) into a single revenue account and nobody backs the tax out before it hits the books.
• What is deductible is the compliance cost: the fee paid to prepare and file periodic occupancy tax returns is an ordinary business expense.
• Real property tax on the building and land is fully deductible under IRC 164, separate from occupancy tax entirely. The two get confused because both show up as “hotel tax” on a monthly close, but they have opposite treatment: property tax is deductible (the hotel bears it), occupancy tax is not (the guest bore it).

Hypothetical example: a 100-room select-service hotel

A 100-room select-service property generating $4,000,000 in gross annual room and ancillary revenue illustrates how these categories stack up in a typical year. Figures below are illustrative, not a template for any specific property, and the actual mix depends heavily on the property’s age, franchise flag, and whether a renovation happened during the year.

Category	Approximate annual amount	Treatment
OTA commissions (18% blended average on ~40% OTA-sourced revenue)	$288,000	Deducted in full under IRC 162, reported against gross revenue
Credit card processing fees	$110,000	Deducted in full as ordinary expense
Guest amenities and supplies (toiletries, breakfast, Wi-Fi, minibar)	$180,000	Deducted in full as ordinary expense
Routine repairs and maintenance (safe-harbor eligible)	$150,000	Deducted in full under repair regulations safe harbors
FF&E purchases (guest room furniture refresh, kitchen equipment)	$600,000	Section 179 / 100% bonus depreciation, full first-year deduction
Lobby and corridor renovation (QIP-eligible interior work)	$700,000	15-year MACRS, 100% bonus depreciation, full first-year deduction
Franchise royalty and marketing fees	$200,000	Deducted in full, generally 4-5% of room revenue
Property tax	$95,000	Deducted in full under IRC 164
Transient occupancy tax collected and remitted	$480,000	Not income, not a deduction, passes through as a liability

The pattern to notice: the largest single-year deduction opportunities (FF&E and the QIP-eligible renovation, together $1,300,000 in this example) come from getting the depreciation election right, not from finding a new expense category. The occupancy tax line ($480,000) is the largest dollar figure on the list and generates zero deduction, which is exactly the kind of number that confuses an owner glancing at a P&L without understanding why it is not reducing taxable income.

What should I do next?

Pull the fixed asset register and check whether last year’s FF&E purchases and renovation work were coded to depreciation categories reflecting Section 179 and bonus eligibility, rather than defaulting to a slow MACRS schedule.

• Separate any interior renovation spending into QIP-eligible work versus structural or exterior work. That split alone can be worth a full bonus-depreciation year on hundreds of thousands of dollars otherwise sitting on a 39-year schedule.

• If a PIP is underway or coming up, get the contractor’s schedule of values broken out by category before the invoice is booked.

• Construction equipment Section 179 and bonus depreciation, the equipment-side depreciation mechanics that apply the same way to hotel FF&E and kitchen equipment

• Restaurant startup costs and pre-opening expenses, the parallel deduction and depreciation analysis for a hotel’s in-house restaurant or bar operation

• Franchise tax deductions for royalties and advertising fees, directly applicable to a flagged hotel’s franchisor payments

• Restaurant bookkeeping and prime cost, the bookkeeping structure that keeps food and beverage costs separate from room operations

• Restaurant inventory management and food waste deductions, the supplies-versus-inventory distinction that also applies to hotel amenity stock

• Cost segregation and 100% bonus depreciation, the building-level study that identifies short-life components (PTACs, decorative lighting, portions of the electrical system) inside a hotel property

• Hotel PIP tax treatment, the repair vs capital improvement line for hotel renovations, QIP eligibility, FF&E reserve treatment, and how to classify PIP spending for maximum first-year deductions

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.