Discover how hotel owners and hospitality investors can leverage Qualified Opportunity Zones to unlock tax incentives, secure long-term capital, and drive property value growth.

Drawing on our extensive experience in hospitality real estate, Crystal Investment Property highlights how hotel owners and investors can benefit from the often-overlooked advantages of Qualified Opportunity Zones (QOZs). These federally designated areas offer a unique combination of tax incentives and long-term investment potential, particularly for those seeking to enhance property value and secure stable capital partnerships.

Understanding Qualified Opportunity Zones—and how they align with the unique needs of hospitality investors—can turn distressed properties into thriving assets while optimizing after-tax returns.

What Are Qualified Opportunity Zones (QOZs)?

Qualified Opportunity Zones (QOZs) are economically distressed communities where new investments may be eligible for preferential tax treatment. Created under the Tax Cuts and Jobs Act of 2017, Qualified Opportunity Zones (QOZs) aim to spur economic development by encouraging private investment in underserved areas.

According to IRS guidance, investments in these zones are made through Qualified Opportunity Funds (QOFs), offering a range of tax benefits to investors who reinvest eligible capital gains.

How Opportunity Zone Investments Work for Hotel Owners

• Capital Gains Deferral
  Investors can defer tax on prior capital gains by reinvesting in a Qualified Opportunity Fund within 180 days of realizing the gain. Taxes are deferred until the earlier of the QOF sale or December 31, 2026.
• Reduction of Deferred Gains
  If the investment is held for at least five years, investors receive a 10% reduction on the deferred gain. Holding for seven years increases the reduction to 15%.
• Exclusion of New Gains
  After ten years, any appreciation in the QOF investment can be permanently excluded from taxable income, providing a major long-term advantage.

This structure provides a unique opportunity for hotel owners to strategically defer, reduce, and even eliminate significant portions of capital gains taxes. Additional IRS FAQs on Opportunity Zones.

Benefits of Opportunity Zones for Hotel Owners

Hospitality investments located in QOZs offer hotel owners and investors several key advantages:

• Access to Capital: Properties in Opportunity Zones are more attractive to investors seeking tax-advantaged investments, which may ease financing for new acquisitions or redevelopment projects.
• Long-term Investment Stability: The incentive structure rewards patient capital, attracting investors who align with the multi-year timelines of hospitality projects.
• Enhanced Property Values: Infrastructure improvements and revitalization initiatives often accompany QOZ designations, which can lift surrounding property values, including those of hotels.
• Community Revitalization Impact: Hotel developments create jobs, drive tourism, and contribute directly to the growth and resilience of local economies.

Example: Hotel Redevelopment in A Qualified Opportunity Zone

The following example is a hypothetical scenario designed to illustrate how Opportunity Zone investments can benefit hotel redevelopment projects.

Qualified Opportunity Zones (QOZs) create real potential for hotel redevelopment projects across the Pacific Northwest. Consider a distressed limited-service hotel located within a designated Opportunity Zone in Spokane, Washington.

An investor who recently sold a separate asset chooses to defer their capital gains by creating a Qualified Opportunity Fund (QOF) and acquiring the hotel for $4.8 million. Over several years, the investor commits an additional $7.2 million to renovating and repositioning the property as a boutique hotel serving Spokane’s growing business, university, and healthcare travel sectors.

Because the investment is held through a QOF:

• After five years, the investor is eligible for a 10% reduction on the original deferred gain.
• After seven years, the reduction increases to 15%.
• After ten years, when the hotel is sold, the investor can exclude all appreciation (e.g., any value growth from $4.8 million to $18 million) from taxable capital gains.

By adhering to IRS regulations, the investor not only unlocks substantial tax benefits but also helps revitalize an important regional hospitality market.

Layering Opportunity Zone Benefits with Other Incentives

Hotel owners and investors can often amplify returns by layering QOZ benefits with other available programs:

• New Markets Tax Credit (NMTC)
  Encourages private investment in low-income communities by offering tax credits. Hotels located in designated areas may qualify. (CDFI Fund – NMTC Program)
• Historic Tax Credit (HTC)
  Offers a 20% tax credit for the rehabilitation of certified historic structures, often applicable to historic hotels.
• State and Local Incentives
  May include property tax abatements, sales tax rebates for construction materials, infrastructure investments, and job creation tax credits tied to hotel staffing and operations.

Strategically combining QOZ incentives with other federal, state, and municipal programs can substantially improve project feasibility and increase returns. Investors should consult with tax advisors and legal professionals early in the process to ensure full compliance and to maximize available benefits.

Explore Hotel Investment Opportunities in Opportunity Zones

Qualified Opportunity Zones offer hotel owners and hospitality investors a unique path to long-term growth, tax savings, and community impact.

At Crystal Investment Property, we specialize in helping hotel owners and investors maximize the benefits of Opportunity Zone investments. From acquisition opportunities to strategic redevelopment projects, our listings can help you unlock long-term growth while benefiting from preferential tax treatment.

View CIP Listings in Opportunity Zones.

Sources

Disclaimer: The content provided in this article is for general informational purposes only and should not be considered legal or tax advice.

About CIP

Crystal Investment Property, a premier hospitality investment advisory and brokerage company located in the Pacific Northwest, maintains the most cutting-edge technological, online, and social media presence as well as a full range of traditional and web-based marketing reaching local, regional, national, and international clientele. The firm’s core services of hospitality asset acquisition/disposition are supported by innovative and creative solutions to maintain its position as the most active and successful hotel broker in the region. Crystal Investment Property represents the full spectrum of hospitality real estate owners and their experience covers all hospitality asset types, including full-service hotels, boutique hotels, select-service hotels, limited-service hotels, as well as development projects, and leasehold transactions.