Real Estate Tax Calc
MACRS depreciation life for restaurant equipment
Restaurant equipment for federal income tax purposes is depreciated using the Modified Accelerated Cost Recovery System (MACRS). The recovery period depends on the asset's classification under IRS asset class tables (Revenue Procedure 87-56).
Most commercial kitchen equipment — ranges, ovens, fryers, grills, ventilation hoods, commercial refrigerators, freezers, ice machines, dishwashers, and commercial mixers — falls under Asset Class 57.0 (Distributive Trades and Services) with a 5-year GDS (General Depreciation System) life. Under the 200% declining balance method with a switch to straight-line, a 5-year asset is generally depreciated as follows: Year 1: 20%, Year 2: 32%, Year 3: 19.2%, Year 4: 11.52%, Year 5: 11.52%, Year 6: 5.76% (note: the half-year convention stretches a 5-year asset into six tax years).
Dining room furniture — tables, chairs, booths, bar stools — is classified as 7-year property under Asset Class 57.0 as well, or sometimes as office furniture under Asset Class 00.11. The 7-year recovery follows a 200% declining balance schedule: Year 1: 14.29%, Year 2: 24.49%, Year 3: 17.49%, Year 4: 12.49%, Year 5: 8.93%, Year 6: 8.92%, Year 7: 8.93%, Year 8: 4.46% (the half-year convention again stretches recovery into 8 years). POS systems, computer registers, tablets used for ordering, and kitchen display systems are generally 5-year property as computers and peripheral equipment.
Bonus depreciation: deduct most equipment in year one
Bonus depreciation allows businesses to immediately deduct a large percentage (historically 100%, now phased down under the TCJA schedule) of the cost of qualifying 5-year and 7-year property in the year it is placed in service. Under the One Big Beautiful Budget Act (OBBBA) signed in 2025, 100% bonus depreciation has been restored permanently for property placed in service after a specified date in 2025.
For a restaurant that placed $200,000 of commercial kitchen equipment in service after the restoration date, 100% bonus depreciation allows the full $200,000 to be deducted in year one — rather than spread across 5 or 6 years under regular MACRS. At a 21% corporate tax rate or a 37% individual marginal rate, that first-year deduction represents $42,000–$74,000 in immediate tax savings.
Bonus depreciation applies to new and used qualifying property. A restaurant that buys used commercial refrigeration equipment from another business can still claim bonus depreciation, provided the equipment has not been previously used by the buyer or a related party. This makes equipment upgrades — buying used commercial equipment from closing restaurants — an attractive tax planning tool.
Section 179 expensing: an alternative for immediate deductions
Section 179 is a companion provision to bonus depreciation that allows businesses to elect to deduct the cost of qualifying personal property immediately as a current expense rather than depreciating it over the asset's MACRS life. For 2026, the Section 179 deduction limit is $1,220,000 (indexed for inflation), with a phase-out beginning at $3,050,000 of total property placed in service during the year.
Key difference from bonus depreciation: Section 179 is limited to the taxable income from the business — it cannot create a loss. Bonus depreciation has no such limitation and can create or increase a net operating loss that carries forward to future years. For a profitable restaurant with enough taxable income, either method produces similar year-one results. For a startup restaurant or an establishment with thin margins in a given year, bonus depreciation is usually preferable because it is not limited by current-year income.
Section 179 and bonus depreciation can be combined: use Section 179 up to the taxable income limit, then apply bonus depreciation to any remaining eligible basis. The two work together to maximize first-year deductions for restaurant operators who are profitable.
What restaurant assets get which MACRS life
Here is a practical breakdown of common restaurant assets and their MACRS classification:
5-year MACRS: Commercial ranges, ovens, fryers, grills, salamanders, steam equipment, ventilation hood systems, commercial refrigerators and freezers, walk-in coolers (if moveable), ice machines, commercial dishwashers, mixers, slicers, food processors, POS systems, tablets, printers, bar equipment, espresso machines, draft beer systems.
7-year MACRS: Dining tables and chairs, booths and banquettes, bar furniture, general office furniture in the manager's office.
15-year MACRS (land improvements): Outdoor seating areas on owned property, patio structures that are removable, parking lot surfacing.
39-year MACRS (nonresidential real property): The building itself, permanent walls, permanent structural systems. Note that a cost segregation study can reclassify portions of the building's cost basis into 5-, 7-, and 15-year property — a significant opportunity for restaurant owners who own their building.
Qualified Improvement Property (QIP, 15-year): Internal improvements to an already-placed-in-service nonresidential building — kitchen remodels, dining room renovation, new flooring, lighting upgrades within the building envelope — are classified as 15-year QIP under TCJA rules (as corrected by the CARES Act). QIP is eligible for bonus depreciation, making restaurant renovations highly tax-advantaged.
Walk-in coolers and refrigerated display cases: special rules
Walk-in coolers and refrigerated display cases deserve special mention because their depreciable life depends on whether they are attached to the building. A freestanding, self-contained walk-in cooler that can be disassembled and moved is personal property — 5-year MACRS — and eligible for bonus depreciation and Section 179. A walk-in cooler that is structurally integrated into the building (built into the walls, sharing the building's refrigeration system, with permanent penetrations) is more likely to be treated as part of the building — 39-year real property — unless a cost segregation study reclassifies it.
The distinction matters enormously: a $150,000 integrated cooler depreciated over 39 years costs about $3,846 per year in deductions; the same cooler treated as 5-year property generates $30,000 in year-one deductions under regular MACRS and $150,000 under bonus depreciation. A restaurant with significant refrigeration infrastructure should evaluate cost segregation at acquisition or build-out to capture this reclassification.
Depreciation recapture when you sell restaurant equipment
When restaurant equipment is sold, retired, or scrapped, the depreciation you claimed is subject to Section 1245 recapture as ordinary income. Unlike real property (where the 25% recapture cap applies), personal property recapture has no ceiling — it is taxed at your full ordinary income rate.
Example: you bought a commercial oven for $25,000, took $20,000 of bonus depreciation in year one, and have an adjusted basis of $5,000. Three years later you sell the oven for $8,000. The gain is $3,000 ($8,000 minus $5,000 basis). All $3,000 is Section 1245 recapture, taxed as ordinary income. If you had scrapped the oven for $0, you would have a $5,000 ordinary loss — favorable, because equipment losses are ordinary income losses (not capital losses) for business property.
When an entire restaurant is sold, the Section 1245 recapture on all the depreciated equipment is part of the total taxable gain, reported on Form 4797, Part III. Buyers should request an asset list and depreciation schedule from the seller to understand how much recapture is embedded in the business acquisition price — it affects the tax analysis for the buyer as well (the buyer depreciates assets from their purchase basis forward).
Placed-in-service date: when depreciation begins
Depreciation on restaurant equipment begins when the asset is placed in service — available and ready for its intended use. For equipment delivered to a restaurant before opening, the placed-in-service date is when the restaurant opens and the equipment is functional and ready for use. For equipment added during operations, it is the date it is installed, tested, and ready to use.
The half-year convention applies to most 5-year and 7-year personal property: regardless of when during the year you place the asset in service, you take a half-year of depreciation in year one. The exception is the mid-quarter convention: if more than 40% of all personal property placed in service during the year is placed in service in the last quarter of the year, the mid-quarter convention applies to all personal property that year, changing the depreciation amounts in each year. Restaurant owners who buy significant equipment in Q4 should be aware of this rule.
For bonus depreciation, the placed-in-service date determines which bonus depreciation percentage applies. Equipment placed in service after the 100% bonus restoration date (under OBBBA) qualifies for full first-year expensing.
Worked example: a restaurant build-out with equipment purchases
Consider a restaurant operator who opens a new location in a leased space and purchases the following assets: commercial kitchen equipment (ranges, hoods, refrigeration, dishwasher) at a total cost of $180,000; POS system and tablets for $15,000; dining furniture (tables, chairs, booths) at $45,000; and qualifying improvements to the leased space at $90,000 (QIP — kitchen buildout, flooring, lighting).
Total investment: $330,000. Under 100% bonus depreciation, all of this qualifies for immediate expensing: $180,000 (5-year equipment) + $15,000 (5-year computer equipment) + $45,000 (7-year furniture) + $90,000 (15-year QIP) = $330,000 deductible in year one. At a combined federal-state marginal rate of 40%, the year-one tax savings is $132,000.
Without bonus depreciation (using only regular MACRS): first-year deductions total approximately $65,100 ($36,000 on the 5-year items, $6,430 on the 7-year furniture, and $1,154 on QIP under straight-line), saving roughly $26,000 in taxes in year one — a $106,000 difference in cash flow in the first year. The bonus depreciation benefit is substantial for capital-intensive restaurant openings.
Frequently asked questions
What is the MACRS life for restaurant equipment?
Most commercial kitchen and dining equipment is 5-year or 7-year MACRS property. Kitchen equipment (ranges, refrigerators, dishwashers) is typically 5 years; dining furniture is generally 7 years.
Can I deduct restaurant equipment immediately?
Yes, through bonus depreciation or Section 179. With 100% bonus depreciation (restored by OBBBA in 2025), qualifying equipment placed in service after the effective date can be fully expensed in year one.
Is a walk-in cooler depreciable over 5 years or 39 years?
It depends on whether it is freestanding (personal property, 5-year MACRS) or structurally integrated into the building (real property, 39 years). A cost segregation study can identify reclassifiable refrigeration components.
What is Section 179 for restaurant equipment?
Section 179 lets restaurants elect to expense qualifying equipment immediately rather than depreciating it. The 2026 limit is $1,220,000. Unlike bonus depreciation, Section 179 cannot create a tax loss — it is limited to business taxable income.
What happens to depreciation when I sell the restaurant?
Section 1245 recapture applies — the accumulated depreciation on personal property (equipment, furniture, POS systems) is recognized as ordinary income in the year of sale, reported on Form 4797.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.