Hospitality Trends: 10 Legal Issues for Companies in 2025

With the 2025 budget reconciliation process already underway in Congress, there are numerous tax issues impacting the Hospitality Industry that should be closely followed.

Bonus Depreciation

Under current law, interior, non-structural improvements to non-residential, commercial buildings (including hotels) QIP are generally eligible for bonus depreciation during the year QIP is placed in service. However, under the Tax Cuts and Jobs Act of 2017 (TCJA), bonus depreciation for QIP phases down from 40% in 2025, 20% in 2026, and 0% in 2027. One clear policy goal of Congressional Republicans and the Trump Administration is to extend the TCJA’s tax cuts and policies. Thus, taxpayers in the Hospitality industry should closely follow 2025 tax legislation and consider whether capital improvement projects generating QIP bonus depreciation should be delayed until 2026 or 2027 to take advantage of potential increases in the bonus depreciation rates (e.g., in the event 100% bonus depreciation is reinstated and the phase-down is restarted).

Interest Expense Limitations

Under current law, certain limitations apply to the deductibility of business interest expenses (e.g., 30% of EBIT cap). As discussed in our 2024 Hospitality alert, the US House of Representatives passed legislation in early 2024 to increase the cap on business interest expense deductions. Such legislation was not ultimately enacted, and it remains to be seen whether the cap on business interest expense deductions will be increased as part of tax legislation in 2025. Any increases to the current cap on business interest expense deductions, however, could help buffer the current interest rate environment and improve financing conditions for capital improvements in the Hospitality industry.

SALT Deduction/Corporate Tax Rates

As many know, the TCJA generally capped taxpayers’ ability to deduct state and local taxes (e.g., income, sales, and property taxes) to $10,000 (SALT Cap). For pass-through entities, many states have implemented workarounds to the SALT Cap and the Internal Revenue Service (IRS) has generally blessed such workaround mechanisms. However, the TCJA did not impose the SALT Cap on C-corporations. As part of the Congressional debate over 2025 tax legislation, some Congressional Republicans have advocated to repeal the SALT Cap for individuals and pass-through entities and to impose a new SALT Cap on C-corporations. In addition, the Trump Administration has advocated for a reduction in the corporate tax rate from 21% to 15%, which could potentially offset the tax impact of a new SALT Cap on C-corporations. Corporate taxpayers in the Hospitality industry that are taxed as C-corporations should closely track any changes to the SALT Cap and corporate tax rates.

Increased Enforcement Focus on Private Sector Diversity and Equal Employment Opportunity Initiatives

Since taking office, President Trump has issued several executive orders and taken other actions making clear that his administration will be prioritizing enforcement actions against private sector employers engaged in what his executive orders have characterized as unlawful DEI programs and policies. Although certain aspects of President Trump’s executive orders relating to DEI have been temporarily blocked by the courts, it is expected that private sector DEI programs will remain a major focus of government agencies and private litigants.

On January 21, President Trump signed an executive order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” which aims to end DEI preferences in both the public and the private sectors, including employers in the Hospitality industry. Section 4 of the DEI executive order tasks all federal agency heads with “encouraging” private sector companies to end DEI preferences, in part by threatening legal action against them. The DEI executive order is based off of the premise that longstanding civil rights laws designed to protect against discrimination have been used by institutions to adopt “dangerous, demeaning, and immoral race- and sex-based preferences under the guise of so-called ‘diversity, equity, and inclusion’ (DEI) or ‘diversity, equity, inclusion, and accessibility’ (DEIA)” which could violate those laws. Accordingly, the order directs the heads of all federal agencies to take action to advance in the private sector “the policy of individual initiative, excellence, and hard work.”

Additionally, on February 5, Attorney General Pam Bondi issued a memorandum that further targets private sector employers’ use of DEI programs and initiatives. The memorandum states that the US Department of Justice will “investigate, eliminate, and penalize illegal DEI and DEIA preferences, mandates, policies, programs, and activities in the private sector.”

Finally, at the Equal Employment Opportunity Commission (EEOC), the federal agency that enforces federal anti-discrimination laws, President Trump appointed current EEOC Commissioner Andrea Lucas as the acting chair of the EEOC. Commissioner Lucas issued a press release highlighting the EEOC’s priorities under her leadership, which include:

• Rooting out unlawful DEI-motivated race and sex discrimination.
• Protecting American workers from anti-American national origin discrimination.
• Defending the biological and binary reality of sex and related rights, including women’s rights to single-sex spaces at work.
• Protecting workers from religious bias and harassment, including antisemitism.
• Remedying other areas of recent under-enforcement.

Based on the foregoing, it is clear that private sector employers will face heightened scrutiny regarding programs and policies they have put in place in an effort to increase the diversity of their workforce. Because none of the directives described above clearly define what constitutes “illegal discrimination or preferences,” it can be difficult to determine whether a specific practice is likely to be the target of negative government attention or private litigation.

Notably, nothing to date suggests that employers may not take action to seek out a diverse candidate pool, so long as ultimate hiring decisions are based on qualifications alone and do not involve illegal preferences. Therefore, to lower the risk of enforcement action by the federal government, private sector employers may choose to recruit across a broader spectrum and prioritize seeking out a wide range of diverse characteristics, rather than just focusing on protected characteristics like race or sex. Private sector employers are also encouraged to conduct audits or otherwise assess whether there are any aspects of their human resources or DEI policies, programs, or practices that may be construed as “illegal DEI.”

District of Columbia Initiates Two Innovative Programs to Spur Downtown Office Conversions

Office to Anything
In mid-January, Mayor Muriel Bowser announced a new District of Columbia program called “Office to Anything.” This program incentivizes the repositioning of office buildings into new, activated commercial, hotel, entertainment, retail, and other non-residential purposes. The location for this opportunity is defined by the DC Office of Planning and is called the Central Washington Planning Area. It covers all Downtown DC and portions of NoMa and Southwest. The official name for the program is the Central Washington Activation Projects Temporary Tax Abatement. The program offers each project a 15-year temporary property tax freeze and is expected to support the conversion of 2-2.5 million square feet of office space and the value of the total tax abatements available is subject to a cap of $5 million for 2027, $6 million for 2028, and $8 million for 2029, with 4% growth each year after.

Housing in Downtown
The intent of this program is to complement the District’s “Housing in Downtown” program which was announced in the Fall of 2024. That program was designed to create new residential development and add thousands of new residents downtown through a 20-year tax abatement for commercial-to-residential conversions. In total, the program is capped at $41 million. The city believes that this investment can help deliver 6.7 million square feet of new residential use or 8,400 new housing units. Housing in Downtown program project participants will be required to make at least 10% of units affordable at 60% of the Median Family Income (MFI), or 18% of units affordable at 80% MFI.

Both programs are intended to spur the repurposing of outdated and obsolete office spaces into new hotel and other commercial and non-commercial uses (including residential, world-class office, and restaurant uses). Like the revitalization efforts undertaken nearly 20 years ago by former Mayor Anthony Williams, Mayor Bowser is looking to reactivate the downtown spaces to create a stronger tax base and create a more active city that fosters safety in the downtown area. The program was funded in the previous city budgets and the “Office to Anything” will most likely show up in the current year’s budget debates.

California Invasion of Privacy Act Suits

A recent surge of CIPA lawsuits and demand letters target website operators, accusing them of “secretly installing tracking software on the devices of all visitors” and using online tracking technologies, such as pixels, cookies, and web beacons, that supposedly illegally capture the communications “signaling information,” even where a website operator has an immediate pop-up window disclosing its cookie practices. While any industry can be the target of these claims, it should be noted here that these cases started to take off in earnest after an LA Superior Court judge denied a motion to dismiss filed by a hotel chain, ruling that “[i]f merely visiting a website constitutes consent to the use of a [trap and trace device], then Section 638.51(a) would be a dead letter. It could never be violated. That is not an acceptable consequence.”

However, the sole purpose of these sections of CIPA was to authorize state and local law enforcement to use pen register and trap and trace devices under state law on telephone lines with a court order. In other words, this statute was not enacted to restrict any party to a communication, including website operators, from continuing to use information exchanged in the ordinary course of a communication. Otherwise, anyone using caller ID on their phone without a court order would be in violation of this law. In fact, this is the only reasonable interpretation of this law when considering the statutory definitions, which expressly limit the key terms of “wire communication” and “electronic communication” as applying to the interceptions of wire and electronic communications. That is, these definitions expressly do not apply to stored communications or stored content. And as we have successfully argued in similar CIPA cases, once a consumer reaches the destination website, that is reception, not interception.

The Continued Adoption and Enforcement of Building Performance Standards

Through the Building Technologies Office, the DOE has previously encouraged and supported state and local governments in their adoption of “Building Performance Standards” (BPS), which are policies and laws that require existing buildings to meet energy or greenhouse gas emissions-based targets to reduce or offset the carbon impact of those buildings. While the Trump Administration’s mandate to roll back environmental policy initiatives will likely impact the DOE’s role in promoting BPS, many states and localities have already adopted standards in line with BPS and more will undoubtedly continue to do so.

According to the DOE, Colorado, Maryland, Washington, Oregon, and the District of Columbia have adopted statewide BPS, while California is currently considering adoption. In addition, 12 counties and municipalities (including New York, Boston, Seattle, Denver, and St. Louis) have adopted BPS and 29 others are weighing adoption.

BPS vary in their terms and restrictiveness. In 2024, we discussed the escalating restrictions imposed by New York City in Local Law 97 (here). The first reporting of greenhouse gas emissions by owners of buildings larger than 25,000 square feet due May 1 under Local Law 97.

The District of Columbia’s BPS standards were adopted as part of the CleanEnergy DC Omnibus Amendment Act of 2018 (CEDC Act). As of May 1, 2022, the District BPS regime applied to privately owned buildings that are larger than 25,000 square feet; and will adjust on May 1, 2026, to apply to privately owned buildings that are larger than 10,000 square feet.

Currently, the CEDC Act requires hotels to meet an Energy Star score of at least 54 or a Source Energy Use Intensity (EUI) of 183.9. However, these thresholds are scheduled to be adjusted as of January 1, 2028. If a building fails to meet the designated threshold, then it would enter into a five-year compliance cycle. There are a number of ways for the building to achieve compliance during the compliance cycle, including meeting the applicable threshold, demonstrating a 20% reduction in site EUI, or a custom compliance plan, among others.

The CEDC Act imposes a maximum penalty of $10/sf of gross floor area (capped at $7.5 million) for noncompliance. Although these penalties are reduced in proportion to the building’s compliance with the applicable threshold, the maximum penalty can be assessed in other circumstances, such as the submission of inaccurate information, knowingly withholding information, or implementing measures that pose a threat to the health and safety of building occupants.

There are a number of loan, grant, and other incentive programs that hotel owners may be able to utilize to offset the costs of compliance with the CEDC Act. For instance, the DC Green Bank offers funding for the cost of energy efficiency and renewable energy projects and financing for building upgrades. And the DC Sustainable Energy Utility C&I Custom program provides other financial incentives for the installation and replacement of certain equipment to that will allow the permanent reduction in electrical or natural gas usage.

BPS, such as the CEDC Act, promise to impose higher costs upon many hotel owners, potentially resulting from fines for failure to meet the law’s thresholds, upgrades necessary to avoid those fines, or meeting disclosure compliance requirements. Affected owners should develop a plan to ensure that they are efficiently and effectively complying with applicable disclosure requirements, taking advantage of any BPS compliance exemptions, considering any available incentive programs, and weighing the relative benefits of refitting a non-compliant building.