The hospitality industry thrives on adaptability, and recent legislative changes offer a fresh opportunity to optimize financial strategy and operational planning. The One Big Beautiful Bill Act of 2025 (OBBBA) introduces several tax provisions that directly impact hospitality businesses—from restoring full bonus depreciation to eliminating federal income tax on qualified tips. These updates not only improve cash flow and reduce tax burdens but also create new incentives for investment, employee engagement, and long-term estate planning. Understanding and acting on these changes can position hospitality business owners and operators for stronger financial performance and strategic growth.
Bonus Depreciation Restored
Under the OBBBA, 100% bonus depreciation has been reinstated for qualifying assets acquired after January 19, 2025. This reverses the TCJA phase-down schedule, which had reduced bonus depreciation to 40% in 2025. Eligible assets include machinery, vehicles, HVAC systems, and specific interior improvements to nonresidential buildings. For hospitality businesses considering investments in renovations or new equipment, this change enables immediate expensing, which improves cash flow and reduces taxable income.
As a reminder, assets acquired under contracts between January 1, 2025, and January 19, 2025, are still subject to 40% depreciation during that timeframe; therefore, timing and documentation are crucial.
No Tax on Tips: What Owners and Operators Must Know
One of the most headline-grabbing provisions of the OBBBA eliminates federal income tax on qualified tips for eligible employees. This change to the code applies to cash or charged tips reported to employers and documented on Form W-2. The maximum deduction is $25,000 per year, and it phases out for individuals earning over $150,000 (or $300,000 for joint filers).
What owners and operators need to know:
- Tips must be voluntary and properly reported to qualify.
- Service charges and mandatory gratuities do not count as qualified tips.
- Employers must continue to withhold Social Security and Medicare taxes.
- The credit for tips available to owners who report and pay on collected cash and credit card tips remains available and should continue to be tracked for tax reporting purposes.
- The IRS has not yet updated withholding tables, so employees may see higher withholdings until guidance is issued.
What owners and operators should prepare for:
- Updates to payroll systems to ensure accurate tip reporting.
- Educating staff on the importance of reporting tips and the benefits of doing so.
- Monitor IRS guidance for eligibility requirements and reporting obligations related to occupations.
- Be cautious about adjusting wages based on anticipated tax savings, as this could be problematic if consumer tipping behavior changes.
Changes to Section 163(j): Interest Deduction Limitations
The OBBBA modifies Section 163(j) by allowing businesses to calculate interest expense limitations after adding back depreciation, amortization, and depletion. This change benefits capital-intensive industries, such as hospitality, where large property investments often result in significant depreciation. Additionally, the law clarifies that capitalized interest under other provisions is also subject to the 163(j) limitation rules. Hospitality businesses should reassess their financing structures and consider how these changes impact their ability to deduct interest, particularly for new developments or renovations.
Strategic Gifting: TCJA Sunset and the New Permanent $15 Million Exemption
For hospitality owners and investors with substantial real estate holdings or closely held business interests, 2025 marks a pivotal year for estate and gift tax planning. Under the Tax Cuts and Jobs Act (TCJA), the lifetime gift and estate tax exclusion is set at $13.99 million per individual for 2025. This elevated threshold was initially scheduled to sunset at the end of the year, reverting to approximately $6 million.
The One Big Beautiful Bill Act of 2025 has permanently increased the base exemption amount to $15 million, effective January 1, 2026, and is indexed for inflation thereafter. This change provides long-term certainty and expanded planning opportunities for high-net-worth individuals and business owners.
Key Gifting Provisions
| Provision | 2025 (TCJA Rules) | 2026+ (OBBBA) |
| Lifetime Gift & Estate Exclusion | $13.99 million | $15 million (indexed, permanent) |
| Annual Gift Exclusion | $19,000 per recipient | Expected to remain indexed |
| Gift Splitting (Spouses) | Allowed | Still allowed |
| Gift Tax Rates | 18%–40% | Unchanged |
| IRS Form 709 | Required for gifts exceeding annual exclusion | Still required |
What This Means for Hospitality Business Owners
- Expanded flexibility: The permanent increase to $15 million allows for more generous transfers of appreciated assets, such as hotels, management companies, or real estate partnerships.
- Valuation remains critical: Accurate appraisals are essential to avoid overuse of the exemption and to support any discounts applied to entity interests.
- Trust planning remains relevant: Vehicles such as SLATs (Spousal Lifetime Access Trusts), GRATs (Grantor Retained Annuity Trusts), and FLPs (Family Limited Partnerships) continue to be practical tools for transferring wealth while maintaining control or income streams.
While the urgency to gift before year-end has eased with the new law, 2025 still offers a unique planning window. Hospitality owners should use this time to review their estate plans, update valuations, and coordinate with advisors to take full advantage of the expanded and now permanent exemption.
The OBBBA brings a suite of tax reforms that hospitality businesses should not overlook. Whether you’re planning major renovations, refining payroll systems, restructuring your finances, or preparing for generational wealth transfers, these provisions offer significant advantages. Timely action and informed planning are key—especially when it comes to asset acquisition timing, tip reporting compliance, and estate valuation. By aligning your strategies with the new rules, hospitality operators can unlock significant tax savings and build a more resilient financial foundation for the future.
Author: Stephen Vinarub, CPA | [email protected]
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For more information on this topic, please contact a member of Withum’s Hospitality Services Team.
