Restaurant QIP: Tenant Improvements, Equipment and Ownership
By AE Tax Advisors · Published 2026-08-09 · Updated November 8, 2026.
A restaurant renovation can include equipment, qualified improvement property and other building costs. The classifications require separate analysis; neither a restaurant use nor a leasehold label makes the whole project immediately deductible.
Identify the taxpayer making the improvement
Review the lease, construction contract and tenant-improvement allowance. Determine who owns and capitalizes each cost. A landlord's contribution can change the analysis, and an existing improvement acquired with a building is not automatically a new taxpayer-made QIP improvement.
Apply the QIP definition
QIP generally covers qualifying interior improvements made by the taxpayer to a nonresidential building after that building was first placed in service. Building enlargements, elevators or escalators and the internal structural framework are excluded. Review the actual construction scope.
Classify kitchen assets separately
Cooking equipment, refrigeration, furniture and dedicated utility work require support for their asset classifications. General building systems and equipment-serving systems can have different treatment. Avoid assigning every hood, floor or utility connection the same life.
Test expensing after classification
Bonus and Section 179 have eligibility, timing and other rules. Verify acquisition and service dates, elections and the applicable tax year before estimating the deduction. Lease term alone does not determine the recovery period.
Plan for a remodel or closure
Track replaced assets and remaining basis. An abandonment or disposition deduction needs facts establishing what was retired and whether the applicable recognition requirements are met. Returning leased space does not automatically establish every proposed write-off.
For study deliverables and the records to supply, see our restaurant cost segregation service guide.
Frequently Asked Questions
Does every restaurant interior cost qualify as QIP?
No. Review who made the improvement, its timing and the statutory exclusions.
Does a short lease let me depreciate all construction over that term?
Not automatically. Apply the tax recovery rules to the actual assets.
Sources and review notes
Reviewed November 8, 2026 by AE Tax Advisors. Examples are illustrative; apply the rules to the relevant tax year and records. See our editorial policy.