How the New “Fiscal Cliff Bill” affects your hotel ownership:
Capital Gains & Dividends: For individuals who earn $400,000.00 or more and married couples who earn $450,000.00 or more the tax rate will increase to 20%. In addition there is a 3.8% tax from the 2010 health-care-law (Obama Health Care). The 15% tax rate remains the same for everyone else except for those earning $200,000.00 single, or $250,000.00 married who will have to pay the extra 3.8% Obama Health Care Tax.
Income Tax: For an individual who earns $400,000.00 or more and a married couple who earns $450,000.00 or more the top tax rate increases from 35% to 39.6%.
Payroll Taxes: Payroll taxes will rise with the expiration of a temporary 2% tax cut adopted two years ago, resulting in less take home pay.
Estate Taxes: The estate tax exclusion remains at $5 million per individual and $10.0 million for married couples, and is adjusted for inflation. According to unofficial estimates the adjusted amount for 2013 should be $5,220,000.00 for individuals and $10,440,000.00 for married couples. Estate and gift tax rates increase from 35% to 40% above the exclusion amount. Good news if you are a resident of the State of Ohio, effective January 1, 2013 Ohio has abolished its 7% estate tax.
Annual Gifts: The annual gift exclusion amount per individual increases to $14,000.00 from 2012’s $13,000.00.
The fighting in Washington will continue as the ugliest battle is still yet to come, in the first quarter, the raising of the debt ceiling. Obama wants to boost it with no strings attached. The GOP wants to trim a dollar of federal spending for every dollar in higher debt that’s authorized. The ceiling will be raised, lest the U.S. default and scare off investors. But don’t be surprised if the action isn’t in time to avoid a credit downgrade.
Economic growth is expected to be modest in 2013, with Gross Domestic Product (GDP) anticipated to rise by 2.9%, but the supply of hotel guestrooms is expected to increase only 0.7% over the next year, much lower than the 1.7% to 3.1% annual increases seen from 2007 to 2009. As a result, there will be continued upward pressure on hotel market values as performance fundamentals remain relatively strong and hotels continue to be good investments in an uncertain economic environment. Positive factors affecting hotel values include rising consumer spending (2.3% growth anticipated in 2013), increasing home values (5.6% growth anticipated), and limited, if any upward pressure on oil prices. Offsetting the positive factors is the expected continued high unemployment rate, though the expected rate of 7% to 8% would be lower than in recent years. Hotel values are expected to register a healthy 8.7% growth rate in 2013 following an 11.8% increase in 2012. Luxury hotels are anticipated to continue to show strong value increases with an 8.9% gain in 2013 which, at $28,773 per guestroom represents the highest increase in value per room of all hotel types. Economy hotels are expected to record the greatest value percentage increase at 10.8%. Overall the Hospitality Industry is outperforming the national economy. But it will be a modest growth. Not the recovery we had all hoped for.
To keep you informed of the value of hotel rooms we have listed the average 2012 capitalization rate for class A hotels:
Central Business District: Our Market: 9.50 National: 8.58 Difference: .92
Suburban: Our Market: 9.56 National: 8.95 Difference: .61
Airport: Our Market: 9.50 National: 9.03 Difference: .47
Average: Our Market: 9.52 National: 8.85 Difference: .67
As you can see the capitalization rate in our market was higher than the National average in all three categories resulting in a slightly lower sales price.