Restaurant Equipment Depreciation: 2025 Playbook For Massive First-Year Deductions

Key takeaways

• Unlock $10,000 to $50,000+ this year by expensing equipment with Section 179 and 2025 bonus depreciation instead of waiting seven years.
• Capture $20,000 more first-year deductions on a $100,000 purchase by placing it in service in 2025 at 40% bonus, rather than 2026 at 20%.
• Expense $10,000 to $25,000 of smallwares immediately using the de minimis safe harbor, avoiding slow depreciation and messy asset lists.
• Avoid costly misses by capitalizing freight and install, tracking placed in service dates, and aligning with state conformity rules.
• Renovations classified as Qualified Improvement Property can generate tens of thousands in year-one write offs with bonus depreciation.
• Financed equipment can still deliver a full Section 179 deduction in year one, creating powerful cash flow leverage.

Why depreciation strategy matters for restaurants

Restaurants live on razor thin margins, so faster write offs directly improve cash flow. A $100,000 kitchen package depreciated over seven years yields small annual deductions, while expensing it now can free up more than $21,000 at a 21% tax rate.

Multiply that across multiple pieces of gear you buy yearly, and the timing difference can decide whether you invest in staff, marketing, or a new revenue stream this quarter, not years from now.

Reframe: A first-year deduction is the same as extra revenue at your margin. On 5% margins, a $21,000 tax savings equals roughly $420,000 in top-line sales you don’t have to generate.

What counts as depreciable restaurant equipment

Under MACRS, most back-of-house gear and FOH furnishings are five or seven year property, while certain interior buildouts are fifteen year property. Getting the class life right is the foundation for choosing Section 179, bonus, or regular depreciation.

• Seven year property: ovens, ranges, fryers, walk-in coolers, dish machines, mixers, slicers, FOH furniture, refrigeration, hoods, ventilation.
• Five year property: POS and kitchen display systems, computers and peripherals.
• Fifteen year property (QIP): interior improvements like flooring, lighting, interior walls, non-structural millwork.

Section 179: expense the full cost in year one

How Section 179 works for commercial kitchens

Place qualifying equipment in service and deduct up to the full purchase price in that year. For 2024, the maximum deduction is $1,220,000, with a $3,050,000 phaseout threshold, and your deduction is limited to taxable income from your active trade or business.

Result: a $28,000 walk-in cooler can generate roughly $5,880 in immediate tax savings at a 21% rate, instead of slow recovery over seven years.

What qualifies for Section 179 in a restaurant

Most tangible personal property qualifies, new or used, plus some real property improvements. Qualified real property includes QIP, roofs, HVAC, fire protection and alarm systems, and security systems.

Renovating the space or replacing HVAC can often be fully expensed under Section 179 in the year placed in service, subject to the income limit.

The financed equipment advantage

You can use Section 179 on financed equipment. If ownership transfers and the asset is placed in service, you can deduct the full amount in year one even if payments span several years.

This front-loads tax savings, improving cash flow while you spread out the actual cash payments.

Bonus depreciation: the shrinking window

How bonus depreciation differs from Section 179

• No taxable income limit, so it can create or deepen a net operating loss.
• No annual dollar cap.
• Applies by default unless you elect out.

The catch is timing. Bonus is phasing down, which changes the math on when to buy and place gear in service.

The phase down schedule

• 2023: 80%
• 2024: 60%
• 2025: 40%
• 2026: 20%
• 2027 and beyond: 0% unless extended

On a $28,000 walk-in placed in 2025, 40% bonus gives an $11,200 immediate deduction. Wait to 2026 at 20%, and year-one drops to $5,600. That difference compounds across a full buildout.

What to do with 2025 purchases

If you already need the equipment, placing it in service in 2025 captures 40% bonus rather than 20% in 2026. Section 179 still allows full expensing if you have taxable income, but only bonus can create or increase a loss.

Model both, because the optimal stack is often Section 179 first, then bonus on the remainder, then MACRS.

Section 179 vs. bonus depreciation: which should you use?

Use Section 179 when

• You are profitable and have enough taxable income to absorb the deduction.
• You want certainty and asset-by-asset control.
• You are expensing qualified real property like HVAC or roofs.

Use bonus depreciation when

• You are at a loss or near breakeven and want to create or deepen an NOL.
• You are placing a large dollar amount of property in service without income limits.
• You prefer automatic application unless you elect out.

Use both when

• You want to control some assets with Section 179 and let bonus apply to the rest.
• You max out Section 179’s income limit but still have qualifying property remaining.

Order matters: Section 179 first, then bonus, then MACRS.

De minimis safe harbor: smallwares and low-cost items

What the rule allows

Elect to expense tangible items under a dollar threshold without capitalizing. If you have audited financials, the threshold is $5,000 per item or invoice. Without audited financials, it is $2,500.

This election turns a year’s worth of pans, glassware, and bar tools into immediate deductions, instead of clogging your fixed asset schedule.

Why it matters for restaurants

• Smallwares, dishware, and bar tools typically fall under the threshold.
• Many restaurants unlock $10,000 to $25,000 of immediate expense here.

The written policy requirement

To use the $5,000 threshold, you need a written capitalization policy in place on day one of the tax year. Without it, you are capped at $2,500.

Be sure your preparer includes the election statement with your return each year.

Qualified Improvement Property: renovate, then accelerate

What qualifies as QIP

Interior improvements to a nonresidential building after it was first placed in service, excluding enlargements, elevators, escalators, and structural framework. For restaurants, think new flooring, lighting, interior walls, ceilings, millwork, and layout changes.

QIP has a 15-year recovery period, which unlocks accelerated methods.

Bonus eligibility on renovations

QIP generally qualifies for bonus depreciation, so you can accelerate part of a renovation in the first year. In 2025, that is 40% of eligible costs, with the balance depreciated over 15 years. See how QIP interacts with credits in this overview of restaurant tax credits.

Cost segregation opportunities

A cost segregation study can reclassify parts of your buildout to shorter lives, such as dedicated electrical for appliances, equipment-specific plumbing, and specialized ventilation. On six-figure projects, this often pulls forward $20,000 to $40,000 of first-year deductions.

Common depreciation mistakes that cost restaurants money

Mistake 1: Not capitalizing freight and installation

Freight, delivery, setup, and required modifications belong in the asset’s basis. Miss them and you shrink your deduction. Capture them and Section 179 or bonus can write them off immediately.

Across a kitchen, this adds up to thousands of dollars in missed savings.

Mistake 2: Defaulting everything to seven-year straight line

Seven-year MACRS on everything is compliant, but often wasteful. If your schedule shows zero Section 179 or bonus, you are likely overpaying today and waiting years for relief.

Ask for a deliberate strategy, not a default.

Mistake 3: Missing the placed in service date

Deductions start when gear is installed and ready for use, not when ordered or delivered. For 2025 bonus, you need equipment operational by December 31, 2025.

Document with install receipts, photos, and first-use notes.

Mistake 4: Ignoring state conformity

Some states limit Section 179 or disallow bonus, requiring add-backs and different state schedules. For an overview of nonconformity and opportunities, see state tax incentives for restaurants.

Miss this and you can rack up state notices or underpayment penalties.

Mistake 5: Not tracking dispositions

When you replace equipment, remove the old asset from the schedule and deduct any remaining basis. Skipping dispositions leaves deductions on the table.

Do a quick scrub each year for items scrapped, sold, or traded in.

The 2025 planning window: what to do now

Action items

• Accelerate must-have purchases into 2025 to capture 40% bonus rather than 20% in 2026.
• Pull your fixed asset listing and scan for assets that never had Section 179 or bonus applied, then consider amendments or a Form 3115 catch-up.
• Put a written capitalization policy in place, setting the de minimis threshold at $2,500, or $5,000 if you have audited financials.
• Consider cost segregation on buildouts of $500,000+ to pull assets into five and seven-year buckets.
• Log placed in service evidence for all Q4 installs.

How depreciation interacts with other restaurant tax benefits

The FICA tip credit (Section 45B)

This dollar-for-dollar credit for employer FICA on tips above $5.15/hour often sits unclaimed. If you paid FICA on $100,000 of eligible tips, that is a $7,650 credit that reduces tax liability directly.

Credits stack with deductions, but you should model the order for maximum benefit.

Coordinating deductions and credits

Section 179 and bonus reduce taxable income, while credits reduce tax owed. Section 179 is limited by income, bonus is not. The right mix can zero out tax today and preserve carryforwards for next year.

Teams that run bookkeeping and tax together catch these interactions in real time. Korefi’s full-stack approach flags when to accelerate Section 179, where bonus creates strategic losses, and how credits like the tip credit fit without wasting value.

New for 2025: the Qualified Tips Deduction (Section 224)

Tipped employees can deduct up to $25,000 of qualified tip income for 2025 through 2028, with phaseouts beginning at $150,000 of income. Your staff’s net pay improves, helping retention without raising wages.

For documentation and timing specifics, see IRS Notice 2025-69. Employers did not need special 2025 W-2 adjustments, but future guidance may evolve.

The contrarian take

Your depreciation schedule is a strategy document, not paperwork. It forecasts cash, reveals when tax shields drop off, and pinpoints assets to accelerate. Owners who review it quarterly pay less tax, period.

A simple framework for equipment decisions

1. Is it under your de minimis threshold? Expense it immediately.
2. Assign the correct MACRS life: five, seven, or fifteen years for QIP.
3. If profitable, use Section 179 to expense the full cost first.
4. If near breakeven or in a loss, let bonus depreciation create or deepen an NOL.
5. Apply MACRS to any remaining basis.
6. Capitalize freight, delivery, install, and required modifications into basis.
7. Document placed in service dates with evidence.
8. Check state conformity and plan add-backs on the state return.

Final word

The bonus window is closing, Section 179 is powerful, and small details like freight capitalization and dispositions quietly swing thousands of dollars. If your schedule looks like one-size-fits-all seven-year straight line, you are almost certainly overpaying.

Korefi’s AI-powered process routinely finds missed basis, misclassified assets, and overlooked elections, then executes the filings to capture cash now. The gear is bought, the money is spent, and the fastest legal recovery wins.

FAQ

Can my restaurant write off a walk-in cooler in one year with Section 179?

Yes, if you place it in service during the year and have enough taxable income to absorb the deduction, you can expense the full cost with Section 179. If you do not have income to use it, consider bonus depreciation for a first-year deduction without the income cap.

Is bonus depreciation still worth it in 2025 for kitchen equipment?

Yes, at 40% it still delivers a large upfront write off, especially if you are at or near a loss. Waiting until 2026 cuts the bonus to 20%, halving your year-one deduction on the same purchase.

Should I finance a new combi oven if I plan to use Section 179?

Financing pairs well with Section 179 because you can deduct the full cost now and pay over time. Ensure ownership transfers and the unit is installed and ready for use before year-end.

Do I have to capitalize smallwares like pans and glassware, or can I expense them?

Most restaurants can expense items under $2,500 per item or invoice using the de minimis safe harbor, or $5,000 with audited financials and a written policy in place. Make the annual election on your return so those purchases do not clog your asset schedule.

What is the difference between QIP and a full buildout for depreciation?

QIP covers interior improvements after the building was first placed in service and excludes enlargements, elevators, escalators, and structural framework. QIP has a 15-year life and qualifies for bonus depreciation, which can accelerate a chunk of your renovation in year one.

My state does not allow bonus depreciation. What happens on my state return?

You will typically add back the federal bonus amount and depreciate on the state schedule instead. Plan cash flow for the state liability and keep a reconciliation so your fixed asset detail matches both federal and state rules.

How do I make sure my placed in service dates are audit-proof?

Save installation invoices, utility activation records, startup checklists, and photos of the unit in operation. Tie those to the asset entry in your fixed asset list so you can prove the date without scrambling later.

Who keeps my depreciation schedule clean if my CPA changes mid-year?

Assign one team to own the fixed asset register and reconcile it monthly. A proactive partner like Korefi can manage bookkeeping, fixed assets, and tax together, so placed in service dates, dispositions, and elections are captured as they happen, not after year-end.