A hotel-portfolio lesson on why buyers should review contract allocation before seller-friendly terms shape tax outcomes.
A closing document can become a tax problem
A hotel owner with a 14-property portfolio had allowed seller-side attorneys to draft purchase agreements and control the allocation among land, building, personal property, and other assets.
Years later, the allocation was challenged. The immediate assessment exceeded $100,000 before negotiation, and the longer-term issue was worse: depreciation schedules had been built on values that had to be corrected.
The lesson
Acquisition documents are not just legal paperwork. They become the source file for depreciation, basis, property tax, sales tax, and future disposition questions.
Review before signing
- Who prepared the purchase agreement?
- Does the allocation help or hurt the buyer's long-term position?
- Are the values defensible?
- Will the CPA and cost segregation team be able to rely on the closing file?
Planning takeaway
The best time to fix purchase allocation is before closing. After it has flowed through years of tax reporting, the correction can become far more expensive than the planning would have been.