Restaurant Equipment Write-Offs: Assets, QIP and Deduction Limits
By AE Tax Advisors ยท Published 2026-08-06
Updated November 8, 2026.
A restaurant purchase or buildout can contain several different tax assets. Cooking equipment, furniture, interior improvements and structural work should not be placed into one category simply because they appear on a single contractor invoice.
Separate equipment from the building project
Obtain itemized costs for equipment, installation, electrical and plumbing work, HVAC, finishes and structural changes. The use and construction of an asset matter to its classification. A walk-in cooler, for example, requires more detail than the product name alone.
A cost segregation study can help support classifications, but there is no universal percentage of a restaurant project that qualifies for a faster write-off. Retain the technical and cost evidence for each material category.
Test qualified improvement property
Qualified improvement property generally concerns eligible interior improvements to nonresidential real property placed in service after the building was first placed in service. Enlargements, elevators and escalators, and internal structural framework are excluded from that category.
A new building or every part of a restaurant renovation does not automatically qualify. Separately review items such as roof and HVAC improvements under the provisions applicable to those assets.
Confirm who owns the improvement for tax
A landlord allowance, tenant payment and landlord-funded construction can have different consequences. Read the lease and allowance terms, including ownership, construction responsibility, reimbursement and end-of-lease provisions.
Who wrote the initial check is not the entire tax-ownership analysis. Do not depreciate an asset belonging to another taxpayer or assume that every cash allowance has the same income treatment.
Compare Section 179 and bonus depreciation
For 2026, the federal Section 179 maximum is $2,560,000 and the investment phaseout begins at $4,090,000, subject to the applicable rules. The taxable-income limit and eligibility restrictions also matter. Multiple locations and related entities may affect the calculation.
Bonus depreciation has different requirements and can create a loss, but a loss is not automatically usable. Check acquisition and service dates, elections, asset eligibility, owner basis, at-risk amounts, passive-activity rules and excess-business-loss limits.
Financing does not establish the tax benefit
A small down payment on financed equipment does not prove a deduction worth more than the cash invested. Identify the tax owner, full cost, business use, debt and financing terms. Calculate the depreciation and the amount usable on the actual return.
Compare federal and state treatment and include the cost of financing, required payments and future sale or recapture consequences. A restaurant investment should work operationally as well as in a tax projection.
Prepare the filing handoff
- Lease, allowance agreement and construction contracts.
- Itemized equipment and installation invoices.
- Plans, photographs and placed-in-service dates.
- Financing documents and prior depreciation schedules.
- Entity and owner projections, including loss carryforwards.
Request a restaurant asset review before finalizing the depreciation schedule. The return-implementation guide explains how a supported study reaches the tax forms.
Frequently Asked Questions
Is every restaurant buildout cost immediately deductible?
No. Equipment, qualifying improvements and structural costs require separate classification and eligibility review.
Does a landlord allowance always mean the landlord owns the assets?
No. Review the agreement and tax facts rather than relying only on the source of payment.
Does financing with a small down payment guarantee a large tax benefit?
No. Ownership, basis, eligibility and deduction limits must be modeled.
Sources and update notes
Source references and the changes described in this guide were checked November 8, 2026. Published by AE Tax Advisors; see our editorial policy. Examples are illustrative and require review of your records before filing.