Restaurant equipment depreciation is how you deduct the cost of ovens, coolers, POS systems, furniture, and build-out work from your taxable income over time, though current rules let most restaurants write off the full cost in year one. The IRS sorts your purchases into recovery periods of 5, 7, or 15 years under MACRS, then Section 179 and 100% bonus depreciation give you the option to skip the schedule and expense everything up front. Which route makes sense depends on your income, your state’s rules, and whether you would rather smooth deductions across years or take them now.
Small Purchases You Can Just Expense
Before you put anything on a depreciation schedule, check whether it qualifies for the de minimis safe harbor election. This lets you deduct small-ticket items immediately. Without audited financial statements, the ceiling is $2,500 per invoice or item. With an applicable financial statement, it rises to $5,000.1Internal Revenue Service. Tangible Property Final Regulations
For a restaurant, that covers a lot: prep tables, small appliances, shelving, hand tools, replacement parts. You make the election each year by attaching a statement to your tax return, so nothing about it is permanent. Anything above the threshold that lasts more than a year goes on your depreciation schedule.
Which Recovery Period Your Equipment Falls Into
To be depreciable, an asset must be property you own, used in your business, and expected to last more than one year. Land is never depreciable, though buildings and certain land improvements can be.2Internal Revenue Service. Topic 704 – Depreciation
Most restaurant assets land in one of three buckets:
- 5-year property: computers, POS systems, credit card terminals, security cameras, and vehicles used for delivery or catering.
- 7-year property: commercial ovens, walk-in coolers, deep fryers, exhaust hoods, dishwashers, dining tables, chairs, booths, and other furniture and fixtures.
- 15-year property: Qualified Improvement Property, which covers interior build-out work on non-residential spaces.
Off-the-shelf software for restaurant management, scheduling, or accounting follows a separate rule. If you don’t expense it immediately under Section 179, the IRS recovers it on a straight-line basis over 36 months.
Getting the classification right at the time of purchase matters. Misclassifying a 7-year asset as 5-year property accelerates your deductions by two years, and that is exactly the sort of error auditors adjust.
MACRS Rates for Restaurant Assets
The Modified Accelerated Cost Recovery System is the default depreciation method for business property placed in service after 1986, and you report it on Form 4562.3Internal Revenue Service. About Form 4562, Depreciation and Amortization MACRS front-loads deductions into the early years of an asset’s life.
Under the half-year convention, which treats every asset as placed in service at the midpoint of the year, 5-year property depreciates at these annual rates: 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76% across years one through six.
For 7-year property, which is where most kitchen equipment and dining furniture sits, the rates are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, 8.92%, 8.93%, and 4.46% across years one through eight. A $35,000 walk-in cooler generates a first-year deduction of about $5,002 and peaks in year two at $8,572.4Internal Revenue Service. Publication 946 – How To Depreciate Property
Both schedules run one year longer than the recovery period because the half-year convention only gives you a partial deduction in the first and final years.
Watch the mid-quarter convention. If more than 40% of your total annual equipment purchases land in the last three months of the tax year, each asset gets a deduction based on the specific quarter it was placed in service, usually shrinking the first-year write-off for Q4 purchases. Restaurants doing year-end equipment pushes should track this threshold carefully.4Internal Revenue Service. Publication 946 – How To Depreciate Property Real property like building improvements uses a mid-month convention instead.
Deducting the Full Cost in Year One
Spreading deductions across five or seven years is fine for accounting, but most owners would rather have the tax benefit now. Two provisions let you do that: Section 179 expensing and bonus depreciation. They are separate rules and can be combined on the same return for different assets.
Section 179
Section 179 lets you deduct the full purchase price of qualifying equipment in the year you place it in service, up to a dollar cap. For tax year 2026, the maximum deduction is $2,560,000, and that limit phases out dollar-for-dollar once total equipment placed in service exceeds $4,090,000.5Internal Revenue Service. Rev. Proc. 2025-32 Most independent restaurants will never approach the phase-out.
The important limitation: the Section 179 deduction cannot exceed your total taxable income from all active businesses. If your restaurant generated $80,000 in net income and you bought $120,000 in equipment, your deduction is capped at $80,000 for the year. The unused amount carries forward indefinitely.6Internal Revenue Service. Form 4562 – Depreciation and Amortization
You elect Section 179 on Form 4562 and choose which assets to apply it to and how much to expense, giving you fine control over how much income to offset. Qualifying property includes ovens, refrigerators, POS systems, furniture, and Qualified Improvement Property. Sport utility vehicles used for business are capped at $32,000 for the Section 179 deduction in 2026, regardless of the vehicle’s total cost.5Internal Revenue Service. Rev. Proc. 2025-32
Bonus Depreciation
Bonus depreciation works differently. Under the One, Big, Beautiful Bill Act signed in 2025, qualifying property acquired after January 19, 2025, is eligible for a permanent 100% first-year depreciation deduction.7Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill Restaurant equipment purchased in 2026 can be fully expensed through bonus depreciation alone.
There is no taxable income limitation, so bonus depreciation can create or increase a net operating loss, which makes it especially useful for new restaurants and loss years. It also applies automatically to all eligible assets unless you specifically elect out on your return. That is the opposite of Section 179’s opt-in approach.
Eligible property includes both new and used assets with a MACRS recovery period of 20 years or less, which covers essentially all restaurant equipment and Qualified Improvement Property. For property acquired before January 20, 2025, and placed in service during a tax year that includes that date, the bonus rate is 40% rather than 100%.
Choosing Between the Two
With 100% bonus depreciation now permanent, most owners will find bonus depreciation simpler because it applies automatically and has no income cap. Section 179 still helps when you want to selectively expense some assets but not others, for instance to manage your income level for other tax purposes, or when you are dealing with property that qualifies for Section 179 but not for bonus depreciation.
Depreciating a Restaurant Build-Out
The interior build-out is often the single largest capital expense, and the IRS treats it differently from movable equipment. Improvements to the interior of a non-residential building placed in service after the building itself was placed in service are classified as Qualified Improvement Property. QIP excludes building enlargements, elevators, escalators, and changes to the internal structural framework.4Internal Revenue Service. Publication 946 – How To Depreciate Property
QIP has a 15-year MACRS recovery period, well below the 39-year period for general non-residential real property. Most of a restaurant build-out qualifies: custom kitchen plumbing, dedicated electrical work, non-structural walls, flooring, lighting, and ventilation tied to cooking equipment.
The real benefit is that QIP is eligible for both Section 179 and 100% bonus depreciation.7Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill A $400,000 build-out placed in service in 2026 could potentially be deducted in full in year one.
When a Cost Segregation Study Is Worth It
When a restaurant owns its building or makes substantial improvements, a cost segregation study can reclassify portions of the building from 39-year real property into shorter 5-year, 7-year, or 15-year categories. A study might identify dedicated electrical wiring to kitchen equipment as 5-year property rather than part of the building, or classify custom cabinetry and specialized flooring as 7-year fixtures.
The IRS outlines what makes a credible study in its Cost Segregation Audit Technique Guide, which requires an engineering analysis, legal justification for each reclassification, and clear identification of which components qualify as personal property versus structural components.8Internal Revenue Service. Cost Segregation Audit Technique Guide (Publication 5653) The line turns on whether an item is “inherently permanent,” meaning physically and functionally tied to the building in a way that removal would cause damage.
Studies typically cost several thousand dollars, so they make the most sense for build-outs above roughly $500,000 or building purchases where a meaningful share of the cost can shift to shorter recovery periods. Combined with 100% bonus depreciation, reclassified components can be fully expensed in year one. If you completed a build-out in a prior year without a study, you can still benefit. The IRS allows a change of accounting method to catch up the missed depreciation without amending prior returns.
What Recapture Costs You at Sale
Depreciation gives you a benefit going in, but the IRS reclaims part of it when you sell equipment for more than its depreciated value. Under Section 1245, when you sell depreciated business equipment at a gain, the portion of the gain attributable to depreciation you previously deducted is taxed as ordinary income, not at the lower capital gains rate.9Office of the Law Revision Counsel. 26 U.S. Code 1245 – Gain From Dispositions of Certain Depreciable Property
If you bought a $40,000 oven, took $40,000 in depreciation (reducing its tax basis to zero), and later sold it for $12,000, that entire $12,000 is ordinary income because it falls within the depreciation claimed.
Equipment sales, trade-ins, and disposals are reported on Form 4797. Assets held more than one year that are sold at a gain go in Part III for the recapture calculation. Assets sold at a loss go in Part I. If you dispose of a building and land together, you allocate the sale price between them based on fair market value and report each separately.10Internal Revenue Service. Instructions for Form 4797, Sales of Business Property
Recapture matters more once you have used bonus depreciation or Section 179 to fully expense equipment in year one. Every dollar of the sale price up to the original cost basis becomes ordinary income. Anyone planning to sell or close a restaurant should build that into their exit timeline.
Records to Keep
The IRS requires records for every depreciable asset until the statute of limitations expires for the tax year in which you dispose of the property.11Internal Revenue Service. How Long Should I Keep Records? That is usually three years after filing the return reporting the sale, but the period extends to six years if income is underreported by more than 25%, and runs indefinitely if no return is filed.
For each piece of equipment, keep the purchase invoice or receipt, the placed-in-service date, the depreciation method and recovery period used, and any Form 4562 schedules that include the asset. If you trade in equipment, keep records for both the old and new property until the limitations period expires for the year you eventually dispose of the replacement.
Restaurants with high equipment turnover should maintain a single asset register listing every depreciable item, its cost, placed-in-service date, recovery period, and annual depreciation taken. That register is what an auditor asks for first, and reconstructing it from scattered invoices years later is not a project anyone enjoys.
Check Your State’s Rules
Federal depreciation rules flow through your federal return, but many states decouple from some or all of the federal accelerated provisions. A state that does not conform to bonus depreciation will require you to calculate depreciation separately on the state return using standard MACRS schedules, even though you claimed 100% bonus depreciation federally. That creates a book-tax difference that adjusts over the life of the asset but can produce an unexpected state tax bill in the first year. Confirm your state’s conformity rules before assuming the federal deduction carries over one-to-one.