Restaurant Equipment Tax Write-Off: Commercial Kitchen Deductions

Restaurant buildouts are a mix of two very different tax animals. The equipment is 5-year and 7-year personal property that can be fully expensed in the first year. The construction is real property that defaults to 39-year recovery. Most operators write one check to a general contractor and let the whole thing land in the wrong bucket.

Separating those two categories correctly is worth more to a restaurant group than any single depreciation election.

What Is Equipment

Cooking line: ranges, fryers, griddles, char broilers, combi ovens, pizza decks, and salamanders. Refrigeration: reach-ins, undercounter units, prep tables, ice machines, and walk-in coolers and freezers where the box is a modular unit rather than built-in-place construction. Warewashing: dish machines, three-compartment sinks, and disposers. Front of house: POS terminals and printers, KDS screens, handhelds, beverage systems, espresso machines, and draft systems.

Also equipment, and frequently misclassified as furnishings or supplies: tables and chairs, booths that are not permanently affixed, host stands, shelving, smallwares above the capitalization threshold, security and camera systems, sound systems, and the network and phone infrastructure.

Most of this is 5-year or 7-year MACRS property. Restaurant equipment specifically sits in the 5-year class under Rev. Proc. 87-56 asset class 57.0. Detail in MACRS recovery periods by asset type.

What Is Not Equipment

Grease traps and interceptors set in the slab. Make-up air and exhaust hood systems that are ducted through the roof. Gas line runs and dedicated electrical service. Plumbing rough-in. Walk-in boxes built in place with poured floors. Flooring, tile, drywall, ceilings, and permanent millwork. These are improvements to real property.

Two provisions rescue part of this. Qualified improvement property—interior improvements to nonresidential real property placed in service after the building was first placed in service—is 15-year property and eligible for 100% bonus depreciation. And IRC Sec. 179(f) allows Section 179 on roofs, HVAC, fire protection and alarm systems, and security systems.

Note the HVAC point specifically. Make-up air and rooftop units serving a restaurant are HVAC, and Section 179(f) reaches them. That is often the single largest line item a restaurant operator can pull out of 39-year recovery.

Why the Invoice Matters

If your general contractor bills "$680,000—restaurant buildout" as a single line, your accountant has no defensible basis to split it. The entire amount tends to get capitalized as leasehold improvement and depreciated over 39 years, and a $680,000 project that should have produced $300,000 or more of first-year deduction produces about $17,000.

Ask for a cost-coded invoice: equipment by unit, HVAC separately, plumbing and electrical separately, finishes separately. It costs the contractor nothing and it is the cheapest tax planning available to a restaurant.

For projects above roughly $500,000, a cost segregation study does the same job with engineering support and typically reclassifies 20% to 40% of a restaurant buildout into 5, 7, and 15-year lives. See cost segregation studies.

Section 179 or Bonus?

For a single location, Section 179 is usually sufficient and gives you asset-by-asset control. For a group opening three locations in a year, spend can approach or exceed the $1,250,000 cap for 2026 and bonus depreciation becomes the workhorse.

The taxable income limitation is the real constraint for restaurants. Section 179 cannot exceed aggregate business taxable income, and a new location in its first year is frequently at or below breakeven. Bonus depreciation can create a loss that carries forward, which for a group with profitable existing locations is generally the better answer because the loss offsets income elsewhere in the same return.

Leased Space Complicates the Question

Most restaurants operate in leased space, which raises who owns the improvements. If the landlord funds the buildout through a tenant improvement allowance, the landlord generally owns and depreciates those improvements, and the allowance may be income to you. If you fund it, you depreciate it and you may be entitled to a loss on abandonment of any remaining basis when the lease ends.

Read the lease before the buildout. Whether the TI allowance is structured as a landlord-funded improvement or a cash payment to the tenant changes both the income and the depreciation answer, and it is negotiable at signing and almost never afterward.

The Financing Structure

Restaurant equipment finances well because it is a hard asset with a resale market. A group acquiring $300,000 of kitchen equipment at 10% down and 3% closing is $39,000 out of pocket against a $300,000 first-year deduction—roughly $105,000 of tax savings at a 35% blended rate. The equipment is producing covers from the day the doors open. The full model is on the equipment leasing page, and structure detail is in financing equipment with 10% down.

Frequently Asked Questions

Can I write off my commercial kitchen equipment in one year?

Yes. Cooking, refrigeration, warewashing, and POS equipment are tangible personal property, generally 5-year MACRS, and eligible for full expensing under Section 179 or 100% bonus depreciation in the year placed in service. Construction elements of the buildout are treated separately.

Is a walk-in cooler equipment or a building improvement?

It depends on how it was installed. A modular prefabricated walk-in box that can be disassembled and moved is generally personal property. A cooler built in place with poured floors, framed walls, and permanent refrigeration lines is more likely a building component. The invoice detail and installation method drive the answer.

Can I deduct my restaurant buildout costs?

Not all in Year 1. Interior improvements to nonresidential real property generally qualify as qualified improvement property, which is 15-year and bonus eligible. Section 179(f) additionally covers roofs, HVAC, fire protection, alarm, and security systems. Structural work and site improvements follow longer recovery periods. A cost segregation study is the standard tool for separating them.

What if my landlord paid for the improvements?

Then the landlord generally owns and depreciates them. A tenant improvement allowance paid to you in cash may be taxable income, and the accompanying improvements become yours to depreciate. The lease language controls, and it is worth negotiating before signing rather than discovering the treatment at tax time.

My new location lost money in its first year. Can I still take the deduction?

Section 179 is limited to your aggregate business taxable income, so a loss-making location cannot support a large 179 election on its own—though income from other locations in the same return counts. Bonus depreciation has no income limitation and can create a net operating loss that carries forward, which is usually the better election in that situation.

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This article is for informational purposes only and does not constitute legal or tax advice. Consult a qualified tax professional regarding your specific circumstances. AE Tax Advisors, 935 Lake Elmo Dr, Suite B, Billings, MT 59105. Phone: (631) 614-5762.