Can restaurant operators claim bonus depreciation on kitchen renovations and equipment?

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For 2025 and 2026, the acquisition date matters because property acquired after January 19, 2025 generally qualifies for 100% expensing under the revised § 168(k), while property acquired earlier follows the phase-down schedule.

General rule

Section 168 allows accelerated cost recovery for tangible property using the applicable method, recovery period, and convention. Under § 168(k), an additional first-year deduction is available for qualified property, generally including Modified Accelerated Cost Recovery System (MACRS) property with a recovery period of 20 years or less, certain software, and water utility property, provided the acquisition rules are satisfied and the property is not required to use Alternative Depreciation System (ADS).That means restaurant kitchen equipment, such as ovens, refrigeration units, dishwashers, prep equipment, and similar tangible personal property, will commonly qualify because it is usually 5- or 7-year property under MACRS

For renovations, the analysis is more nuanced. Improvements to the interior of nonresidential real property may qualify as bonus depreciation qualified property if they meet the definition of qualified improvement property under § 168(e)(6): an improvement made by the taxpayer to an interior portion of nonresidential real property, placed in service after the building was first placed in service, excluding enlargements, elevators or escalators, and internal structural framework.

What usually qualifies in a restaurant kitchen

Restaurant operators typically have three buckets of costs:

• Kitchen equipment and appliances: generally eligible because they are tangible personal property with recovery periods of 20 years or less.
• Dedicated utility hookups: certain plumbing, gas, electrical, and exhaust components that are directly tied to specific kitchen equipment may be treated as § 1245 property rather than building components, depending on the facts.
• Interior renovations: these may qualify as qualified improvement property depreciation if they improve the interior of an existing nonresidential building and are not excluded items.

By contrast, work on structural walls, roof, building enlargement, or other core building components generally remains long-life real property and does not qualify for bonus depreciation under the ordinary § 168(k) rules.

2025–2026 timing matters

The One Big Beautiful Bill Act changed the bonus rules significantly. Property acquired after January 19, 2025 generally qualifies for 100% bonus depreciation when placed in service in 2025 or later. But property acquired before January 20, 2025 remains under the older phase-down schedule: 40% for 2025 and 20% for 2026. So two otherwise identical kitchen projects can produce very different first-year deductions depending on when the taxpayer became bound to acquire the property.

Important limitations

Bonus depreciation is generally not available for property that is required to be depreciated under the Alternative Depreciation System (ADS). IRC § 168(k)(2)(D)(i) excludes property required to use ADS from the definition of qualified property eligible for bonus depreciation. This includes, for example, certain listed property, tax-exempt use property, and property that must be depreciated under ADS because of other Code provision

A Cost Segregation study can be especially helpful in restaurant renovations because it may identify portions of the project that are properly treated as shorter-life property rather than 39-year building property. That classification work is highly factual and should be tied to construction records and the actual function of each asset.

Leasehold improvement bonus depreciation concepts remain relevant for historical tax years, but for current tax years the primary analysis is whether a renovation qualifies as qualified improvement property (QIP) or instead consists of separate § 1245 property (such as certain equipment or dedicated utility systems) eligible for a shorter recovery period under § 168.

How BT Can Help

For more than four decades, Bennett Thrasher has provided businesses and individuals with strategic business guidance and solutions through professional tax, audit, advisory, and business process outsourcing services. Contact Cory Bennett, partner in charge of Bennett Thrasher’s Hospitality practice, or call us at 770.396.2200.

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