Cut Your Tax Bill by $50K-$200K This Year
Cost segregation + specialized deductions unlock massive savings on renovations, equipment, and improvements
Average Restaurant Savings
$80K-$120K
On $500K investment
$250K-$400K
On $1.5M investment
$600K-$1.2M
On $3M+ investment
Tax savings based on 25-37% effective tax rate
Stop Overpaying on These Common Restaurant Expenses
Most restaurant owners are leaving thousands on the table every year
Depreciating $300K renovation over 39 years instead of 5-15
Why wait decades? Accelerate depreciation and get the tax benefit NOW when your restaurant needs capital most.
Missing deductions on kitchen equipment and fixtures
That $150K kitchen upgrade? It qualifies for 5-year depreciation. Most accountants miss this opportunity.
Not claiming QIP (Qualified Improvement Property) benefits
Interior improvements made after opening qualify for immediate expensing under Section 179. That's cash back this year.
Paying too much tax on thin profit margins
Restaurant margins are tight. Every tax dollar saved goes straight to your bottom line and growth capital.
Restaurant Assets That Qualify for Accelerated Depreciation
These common restaurant investments can be depreciated much faster than 39 years
5-Year Property
- Kitchen equipment (ovens, ranges, refrigeration)
- HVAC systems
- Furniture and fixtures
- Point-of-sale systems
- Decorative lighting
- Bar equipment
- Food prep stations
- Display cases
15-Year Property
- Parking lots and landscaping
- Outdoor seating areas
- Fencing and gates
- Site utilities
- Sidewalks and walkways
- Patio improvements
- Exterior lighting
- Signage and monuments
QIP Deduction: Immediate Expensing
Interior improvements made after opening qualify for immediate expensing under Section 179
This includes dining room renovations, kitchen remodels, HVAC upgrades, electrical work, plumbing improvements, and more. Up to $1.16M can be expensed immediately in the year placed in service.
Calculate Your Restaurant's Tax Savings
See how much you could save with cost segregation and accelerated depreciation
Use our interactive calculator to estimate your potential tax savings based on your restaurant's renovation or purchase.
Open Restaurant Tax CalculatorPre-configured with restaurant-specific depreciation percentages (45% 5-year, 15% 15-year)
Why Restaurants Are the Perfect Candidate for Cost Segregation
Restaurant assets have unique characteristics that create exceptional tax savings opportunities
30-40% Reclassification Rate
Unlike typical commercial buildings (15-25% reclassification), restaurants routinely achieve 30-40% or higher reclassification rates. This means a $1M buildout can accelerate $300K-$400K of depreciation from 39 years down to 5-15 years.
Why? Restaurants are asset-dense. Every square foot contains specialized equipment, dedicated electrical and plumbing systems, custom HVAC zones, decorative finishes, and purpose-built infrastructure that qualifies for shorter depreciation lives.
High Capital Investment, Thin Margins
The average restaurant operates on 3-6% net profit margins while requiring massive upfront capital ($250K-$3M+). Traditional depreciation over 39 years means waiting decades to recover tax benefits on investments you need to recoup within 2-3 years.
Cost segregation front-loads tax savings, freeing up capital when restaurants need it most - during the critical first years when cash flow is tightest and expansion opportunities arise.
Restaurant-Specific Asset Categories
Kitchen Equipment (5-year)
- • Commercial ovens & ranges
- • Walk-in coolers & freezers
- • Dishwashing systems
- • Food prep tables & sinks
- • Exhaust hoods & ventilation
- • Ice machines & beverage systems
Dining Fixtures (5-7 year)
- • Tables, chairs, booths
- • Bar tops & back bars
- • Decorative lighting fixtures
- • Custom millwork & cabinetry
- • Artwork & wall treatments
- • Flooring (non-structural)
MEP Systems (5-15 year)
- • Dedicated HVAC zones
- • Kitchen electrical systems
- • Grease traps & plumbing
- • Fire suppression systems
- • POS & networking infrastructure
- • Security & surveillance systems
Cost Segregation for Every Restaurant Type
From food trucks to fine dining, every restaurant concept benefits
Fast Casual & Quick Service
Typical Investment: $250K-$750K | Average Savings: $75K-$225K over 5 years
High equipment density, modular kitchens, and standardized buildouts create excellent cost segregation opportunities. Franchise locations especially benefit from documented equipment costs and uniform construction specs.
Reclassification Rate
35-45%
Casual Dining & Family Restaurants
Typical Investment: $750K-$2M | Average Savings: $225K-$600K over 5 years
Full-service restaurants with bar areas, extensive seating, and themed decor maximize depreciation opportunities. Custom finishes, specialized lighting, and entertainment systems all qualify for accelerated treatment.
Reclassification Rate
30-40%
Fine Dining & Upscale Concepts
Typical Investment: $2M-$5M+ | Average Savings: $600K-$1.5M over 5 years
High-end finishes, chef-grade equipment, wine storage systems, and custom architectural elements create premium cost segregation opportunities. The highest dollar savings of any restaurant category.
Reclassification Rate
40-50%
Food Trucks & Ghost Kitchens
Typical Investment: $75K-$400K | Average Savings: $22K-$120K over 5 years
Food trucks qualify as vehicles (5-7 year property) with 100% bonus depreciation availability. Ghost kitchens and commissary buildouts qualify for Section 179 and accelerated depreciation on all equipment and improvements.
Reclassification Rate
25-35%
Understanding QIP: Qualified Improvement Property
Section 168(e)(6) creates massive opportunities for restaurant owners
What is QIP?
Qualified Improvement Property (QIP) is any improvement to an interior portion of a nonresidential building placed in service after the building was first placed in service.
Key Requirements:
- Interior improvements only (no building envelope)
- Made after the building was placed in service
- Excludes elevators, escalators, structural components
- 15-year property life with immediate expensing available
QIP for Restaurants
Restaurant tenant improvements are the perfect QIP candidate. When you lease a shell space and build out a restaurant, nearly everything qualifies.
Dining Room Renovations
Walls, flooring, ceilings, lighting, HVAC
Kitchen Remodels
Electrical, plumbing, ventilation, finishes
Bathroom Upgrades
Fixtures, tile, partitions, accessibility improvements
Section 179 + QIP = Immediate Expensing
Up to $1.16M can be expensed in the year placed in service, with remaining amounts depreciated over 15 years (vs 39 years).
The TCJA Fix: QIP Bonus Depreciation
The Tax Cuts and Jobs Act of 2017 had a drafting error that prevented QIP from qualifying for bonus depreciation. The CARES Act in 2020 retroactively fixed this, making QIP eligible for 100% bonus depreciation (now phasing down: 80% in 2023, 60% in 2024, etc.).
$500K
QIP Investment
Restaurant buildout placed in service 2023
$400K
Immediate Deduction
80% bonus depreciation in year 1 (2023 rate)
Leasehold Improvements: Tenant vs. Landlord Strategies
Who owns the improvements determines the tax strategy
Tenant-Owned Improvements
When the tenant (restaurant owner) pays for and owns the improvements, you get full control over depreciation strategy.
Maximum Flexibility
You choose Section 179, bonus depreciation, or cost segregation strategies independently.
QIP Eligibility
All interior improvements qualify as QIP if made after building was placed in service.
Lease Term Depreciation
If lease < 15 years, improvements depreciated over remaining lease term (even faster).
Removal Deduction
When lease ends, write off remaining basis plus removal/restoration costs.
Landlord-Owned Improvements
When the landlord pays for improvements (tenant improvement allowance), the landlord gets the depreciation. But you can negotiate better terms.
Negotiate TI Allowance
Landlords love cost segregation too. Negotiate higher TI allowance in exchange for lower rent increases.
Strategic Allocation
Have landlord pay for structural items (39-year), you pay for equipment/fixtures (5-year).
Amortize vs. Rent
If you reimburse landlord, you may amortize costs over lease term as rent expense.
Purchase Option
Lease with option to purchase? Plan cost segregation study for when you exercise option.
Pro Tip: Structure Improvements Strategically
Before Signing Lease:
- • Clarify who owns what (equipment vs improvements)
- • Negotiate separate equipment schedules
- • Document construction allowances vs rent credits
- • Consider lease term length (impacts depreciation)
Optimal Allocation:
- • Tenant pays: Kitchen equipment, furniture, POS, decor
- • Landlord pays: HVAC, electrical panels, structural work
- • Result: Tenant maximizes 5-year property, landlord gets QIP
- • Both parties benefit from accelerated depreciation
Franchise vs. Independent Restaurant Strategies
Both models benefit, but strategies differ based on brand requirements
Franchise Locations
Franchise restaurants have unique advantages for cost segregation studies.
Advantages:
Standardized Equipment Lists
Franchisors provide detailed equipment specs, costs, and installation guides
Brand Standards Documentation
Required finishes, lighting, furniture documented with costs
Multi-Unit Efficiency
Multiple locations can use similar cost segregation templates
Remodel Programs (PIPs)
Property Improvement Plans qualify for QIP and immediate expensing
Multi-Unit Strategy:
Own 3+ franchise locations? Bundle cost segregation studies for volume pricing. Apply learnings across all locations for consistent tax treatment.
Independent Restaurants
Independent operators have maximum flexibility and often higher custom build-out percentages.
Advantages:
Custom Build-Out Flexibility
Unique themes, custom millwork, specialty equipment often = higher reclassification %
No Royalty Overhead
Tax savings go straight to owner, not shared with franchisor fees
Renovation Freedom
Update décor, equipment, layout anytime without franchisor approval
Sale/Conversion Opportunities
Convert concepts? Cost segregation study valuable for both old and new buildouts
Concept Conversion Strategy:
Converting a space from one concept to another? Cost segregation on abandoned assets (disposition study) + new buildout = double tax benefits.
Property Improvement Plans (PIPs): Franchise Gold Mine
What are PIPs?
Franchisors require periodic remodels (every 5-10 years) to maintain brand standards. These mandatory renovations cost $100K-$500K+.
Tax Opportunity:
PIP investments qualify as QIP (interior improvements to existing building). Immediate expensing via Section 179 or bonus depreciation on entire renovation.
Typical Savings:
$250K PIP remodel = $75K-$100K tax savings in year one (vs. $6,400/year over 39 years). ROI on tax strategy: 10-15x.
Cost Segregation Strategies by Acquisition Type
Different scenarios require different approaches
New Construction / Ground-Up Build
Building from scratch? Maximum documentation + maximum flexibility = maximum tax savings.
Timing Strategy:
- • Order cost segregation study BEFORE construction starts
- • Engineer identifies items during build (not after)
- • Contractor invoices organized by asset category
- • Result: Most accurate study, maximum defensibility
Best Practices:
- • Separate equipment purchases on invoices
- • Document site work (parking, landscaping) separately
- • Track interior vs structural costs
- • Photograph construction phases for records
Expected Result: 35-45% reclassification rate on $1M+ new restaurant construction
Restaurant Acquisition / Purchase
Buying an existing restaurant? Cost segregation reallocates purchase price from building (39-year) to equipment/improvements (5-15 year).
Purchase Price Allocation:
- • Land (non-depreciable): 15-25%
- • Building structure (39-year): 35-45%
- • Equipment & fixtures (5-year): 25-35%
- • Site improvements (15-year): 5-10%
- • Goodwill/intangibles (15-year): 10-20%
Critical Timing:
- • Order study BEFORE close or within same tax year
- • Results used for Form 8594 (Asset Acquisition Statement)
- • Must agree with seller on allocation or use independent appraisal
- • File with first tax return after acquisition
Expected Result: $750K purchase price → $225K-$300K reclassified to 5-15 year property
Renovation / Remodel / Expansion
The highest-ROI scenario for cost segregation. Renovations are almost always QIP = immediate expensing opportunities.
What Qualifies:
- • Kitchen equipment upgrades
- • Dining room refresh (flooring, lighting, furniture)
- • HVAC system replacement
- • Bathroom renovations
- • Bar buildouts or expansions
- • POS system upgrades
- • Patio/outdoor seating additions
Immediate Expensing Combo:
- • Section 179: Equipment up to $1.16M
- • QIP + Bonus Depreciation: Interior improvements
- • Cost Segregation: Remaining components to 5-15 year
- • Result: 60-80% of renovation deducted in year one
Expected Result: $500K renovation → $300K-$400K immediate deduction (vs $12,800/year over 39 years)
Lookback Studies: Don't Forget Past Years
Acquired, built, or renovated a restaurant in the last 3-4 years? You can retroactively apply cost segregation through a "lookback study" using Form 3115 (Change in Accounting Method).
How It Works:
File Form 3115 with current year tax return to "catch up" on missed depreciation from prior years as a one-time adjustment.
No Amended Returns Needed:
The IRS allows automatic approval for cost segregation changes. No audit risk, no amended returns, no hassle.
Typical Scenario:
Renovated in 2021, now 2024. Claim 3 years of missed depreciation + current year = instant cash flow improvement.
Real ROI Examples by Restaurant Size
See the actual numbers: investment, savings, and return on your cost segregation study
Quick Service / Food Truck
$500K
Total Investment
Traditional Depreciation (39 years)
$12,800/year
With Cost Segregation (Year 1)
$175,000
Additional Deduction
+$162,200
Casual Dining / Family Restaurant
$2M
Total Investment
Traditional Depreciation (39 years)
$51,200/year
With Cost Segregation (Year 1)
$700,000
Additional Deduction
+$648,800
Fine Dining / Upscale Concept
$5M
Total Investment
Traditional Depreciation (39 years)
$128,000/year
With Cost Segregation (Year 1)
$2,000,000
Additional Deduction
+$1,872,000
Assumptions & Notes
- • Effective tax rate: 37% (federal + state)
- • Reclassification rate: 35% to 5-year, 10% to 15-year property
- • Year 1 deduction includes bonus depreciation where applicable
- • Study costs based on property complexity and value
- • 5-year savings calculated over accelerated period vs 39 years
- • Does not include time value of money (NPV would show higher ROI)
- • Additional strategies (Section 179, QIP) can increase savings further
- • Individual results vary based on specific property characteristics
Common Mistakes Restaurant Owners Make
Avoid these costly errors that leave money on the table
Waiting Too Long
Mistake: Waiting 5+ years after opening/renovation to do cost segregation. While lookback studies work, you lose years of cash flow benefits. Order study ASAP after major investments.
Poor Documentation
Mistake: Throwing away invoices, not separating equipment costs, mixing construction categories. Good records = maximum defensibility. Keep everything organized by asset type.
Using Unqualified Providers
Mistake: Hiring a generic engineering firm without restaurant experience. Restaurant cost segregation requires specialized knowledge of commercial kitchen equipment, QIP, and hospitality asset classifications.
Not Coordinating with CPA
Mistake: Surprising your accountant with cost segregation study at tax time. Coordinate early so CPA can plan overall tax strategy, optimize Section 179, and ensure proper filing.
Ignoring Equipment Upgrades
Mistake: Only doing cost segregation on initial buildout, not renovations. Every equipment replacement, kitchen remodel, or dining room refresh qualifies. Run studies on all major improvements.
Missing QIP Classification
Mistake: Not claiming QIP status for interior improvements made after opening. This single mistake costs tens of thousands in lost immediate expensing opportunities (Section 179 + bonus depreciation).
Leasehold Confusion
Mistake: Assuming leased space doesn't qualify. Tenant improvements YOU paid for qualify even if landlord owns building. Clarify ownership in lease and claim your depreciation.
DIY Cost Segregation
Mistake: Attempting to self-classify assets without engineering expertise. IRS audit requirements mandate detailed engineering-based analysis. DIY approaches fail under audit scrutiny.
Additional Tax Strategies for Restaurants
Stack these strategies with cost segregation for maximum savings
Section 179
Immediate expensing of equipment up to $1.16M
Perfect for kitchen equipment, POS systems, furniture, and vehicles purchased for your restaurant. 100% deduction in year one instead of depreciating over 5-7 years.
Work Opportunity Tax Credit
Hire from targeted groups, save $2,400-$9,600 per employee
Restaurants that hire veterans, SNAP recipients, ex-felons, or other qualifying groups can claim federal tax credits. This stacks with your payroll deductions.
Energy Efficiency Credits
LED retrofits, HVAC upgrades, solar installations
Section 179D deduction for energy-efficient improvements (up to $5/sq ft). Plus state and utility rebates for LED lighting, smart thermostats, and high-efficiency equipment.
Tip Credit (FICA Tip Credit)
Claim FICA tax credit on employee tips
Restaurants can claim a credit for the employer's portion of FICA taxes paid on tips exceeding minimum wage. This can add up to $30K-$50K annually for busy restaurants.
Get Your Money Back in 3 Simple Steps
We make the process simple and stress-free
Free Assessment
Share renovation or purchase details. We'll review your property and provide an estimated savings range within 24-48 hours. No obligation, no cost.
Engineering Study
Our team analyzes your property with a virtual or in-person site visit. We classify every asset and calculate maximum depreciation benefits.
File & Save
Receive IRS-compliant report ready for your CPA. File amended returns or apply to current year taxes. Start saving immediately.
Frequently Asked Questions
Everything you need to know about cost segregation for restaurants
General Cost Segregation
What is cost segregation and how does it work for restaurants?
Cost segregation is an IRS-approved tax strategy that reclassifies building components from 39-year property to shorter depreciation lives (5, 7, or 15 years). For restaurants, this means kitchen equipment, furniture, fixtures, and specialized systems can be depreciated much faster, creating immediate tax savings instead of waiting decades.
How much can I really save with cost segregation?
Restaurant owners typically save $50K-$200K+ in the first year on a $500K-$2M investment. The exact amount depends on your property value, tax bracket, and asset mix. With 30-40% reclassification rates common in restaurants, the tax deferral ranges from 25-37% of the reclassified amount (based on your effective tax rate).
How much does a cost segregation study cost?
Typically $5,000-$15,000 depending on property value and complexity. Average restaurant study costs $7,500-$10,000. With typical ROI of 10-25x, the study pays for itself many times over in the first year. Studies under $500K investment may cost $5K-$7K, while $2M+ properties run $12K-$15K.
Is cost segregation IRS-approved and audit-safe?
Yes! Cost segregation is explicitly approved by the IRS and widely accepted when performed by qualified professionals. Studies must follow IRS Cost Segregation Audit Techniques Guide and Rev. Proc. 2011-14 standards. A properly documented study includes engineering analysis, photographic evidence, and detailed asset classifications that satisfy audit requirements.
Timing & Eligibility
Can I do this on a restaurant I opened 2 years ago?
Absolutely! You can retroactively apply cost segregation to properties acquired or improved in previous years. File Form 3115 (change in accounting method) with your current year tax return to claim missed depreciation from prior years as a one-time catch-up adjustment. No amended returns needed, and we help clients go back 3-4 years regularly.
When is the best time to order a cost segregation study?
Ideally, order the study in the same tax year as your acquisition, construction, or renovation. For new construction, engage before breaking ground for maximum documentation. For acquisitions, order before closing or within the first year. For renovations, order as soon as the project is complete and placed in service.
What's the minimum property value to make cost segregation worthwhile?
Generally $250K+ in building/improvement costs makes economic sense. Below that, study costs may outweigh benefits. However, restaurants often hit higher ROI thresholds at lower values due to high equipment density. A $300K quick service buildout can still generate $40K-$60K in tax savings against a $6K study cost.
Do I qualify if I'm still paying off construction or acquisition loans?
Yes! Cost segregation applies regardless of how you financed the property. In fact, the tax savings can help offset loan payments. The depreciation deductions are based on the asset's placed-in-service date, not when you finish paying for it.
Restaurant-Specific Questions
What if I lease the building but paid for improvements?
Perfect scenario! Tenant improvements (leasehold improvements) qualify for accelerated depreciation. Even if you don't own the building, you own the improvements and can depreciate them over shorter lives. In fact, if your lease term is less than 15 years, improvements may depreciate even faster (over the remaining lease term). QIP classification also allows immediate expensing via Section 179.
Does this work for food trucks or ghost kitchens?
Yes! Food trucks qualify as vehicles/equipment (5-7 year property) with 100% bonus depreciation potential. Ghost kitchens and commissary spaces with equipment and improvements also qualify. Any capital investment in equipment, fixtures, or buildout is eligible. Even mobile/modular kitchen units qualify as personal property with shorter depreciation lives.
What about franchise locations?
Franchise restaurants are excellent candidates! Whether you own the building or lease, franchise buildout costs, equipment, and improvements all qualify. Franchisors often provide detailed equipment lists and specifications that make the study more accurate and defensible. Multi-unit franchise owners can bundle studies for volume pricing and apply consistent methodologies across locations.
Can I use cost segregation for franchise Property Improvement Plans (PIPs)?
Absolutely! PIPs (mandatory franchise remodels) are one of the best cost segregation opportunities. These renovations typically cost $100K-$500K and qualify as QIP (Qualified Improvement Property), making them eligible for immediate expensing via Section 179 or bonus depreciation. A $250K PIP can generate $75K-$100K in first-year tax savings.
What kitchen equipment qualifies for 5-year depreciation?
Nearly all commercial kitchen equipment qualifies: ovens, ranges, fryers, refrigerators, freezers, dishwashers, prep tables, sinks, exhaust hoods, ice machines, coffee equipment, and food warmers. Also includes bar equipment (beer taps, wine coolers, blenders), POS systems, and all furniture/fixtures in dining areas (tables, chairs, booths, bars).
Do restaurant renovations qualify for QIP treatment?
Yes, if the improvements are to the interior of a building placed in service after the building's original use. This includes dining room remodels, kitchen upgrades, bathroom renovations, HVAC replacements, and electrical/plumbing work. QIP qualifies for 15-year depreciation with bonus depreciation eligibility, or immediate expensing via Section 179 (up to $1.16M).
Tax Strategy & Filing
Can I combine cost segregation with Section 179?
Yes! These strategies work together beautifully. Use Section 179 to immediately expense equipment purchases (up to $1.16M limit), then apply cost segregation to reclassify remaining building components to 5-15 year property. For QIP (interior improvements), you can choose Section 179 immediate expensing OR bonus depreciation. Coordinate with your CPA to optimize the combination.
Do I need to amend past tax returns?
No! For lookback studies (properties from prior years), you file Form 3115 (change in accounting method) with your CURRENT year tax return. This automatically adjusts for missed depreciation from previous years without filing amended returns. The IRS provides automatic approval for cost segregation accounting method changes - no special permission needed.
What forms and documentation do I need for my CPA?
Your cost segregation provider delivers an IRS-compliant report with detailed asset classifications, depreciation schedules, and supporting documentation. Your CPA uses this to prepare Form 3115 (if needed), update depreciation schedules on Form 4562, and adjust your tax return. The report includes all necessary backup for audit defense.
Can I use cost segregation if I'm on cash accounting?
Yes! Cost segregation works for both cash and accrual method taxpayers. The depreciation deductions are based on when assets are placed in service, not when you paid for them. Most restaurants are cash basis taxpayers and successfully use cost segregation to accelerate depreciation deductions.
What if I'm in a low-income year - should I wait?
Not necessarily. While depreciation deductions are more valuable in high-income years, waiting means losing time value of money. You can't go back and claim missed depreciation once you've already filed. Consider: (1) current year deductions reduce estimated tax payments immediately, (2) NOLs (net operating losses) can be carried forward, (3) accelerated depreciation front-loads benefits for reinvestment.
Process & Logistics
How long does a cost segregation study take?
Typically 2-4 weeks from engagement to final report delivery. Timeline depends on property complexity, documentation availability, and whether a site visit is required. Virtual studies (using photos/videos) can be faster. Rush services may be available for year-end deadlines.
Do you need to visit my restaurant in person?
Not always. Many studies can be completed virtually using photos, videos, construction documents, and video walkthroughs. In-person site visits provide the most accurate results but aren't mandatory. Virtual studies cost less and complete faster while still delivering IRS-compliant results for most restaurants.
What documentation do I need to provide?
Basic requirements: (1) Purchase/construction closing documents, (2) Contractor invoices and payment records, (3) Building plans/blueprints if available, (4) Equipment purchase receipts, (5) Current property photos. The more documentation you provide, the more accurate and defensible the study. Missing items can often be reconstructed through site inspection.
What if I don't have detailed construction records?
Not a problem! Cost segregation engineers are trained to reconstruct costs through site inspection, industry databases, and engineering estimation techniques. While detailed records improve accuracy, they're not required. Many successful studies are performed on properties where original documentation was lost or never obtained.
Common Concerns
Will this trigger an IRS audit?
No. Cost segregation itself does not increase audit risk. It's a legitimate, IRS-approved tax strategy used by thousands of commercial property owners annually. In fact, a professionally prepared study with proper documentation REDUCES audit risk by providing detailed support for depreciation deductions. IRS Cost Segregation Audit Techniques Guide provides clear standards that qualified providers follow.
What happens if I'm audited?
A properly prepared cost segregation study includes all documentation needed for audit defense. Reputable providers stand behind their work and provide audit support if needed. The IRS rarely challenges studies that follow their published guidelines and include detailed engineering analysis, photographic evidence, and proper asset classifications. Most audits simply request the study report for review.
Does cost segregation create recapture issues when I sell?
Potentially, but the benefits far outweigh concerns. When you sell, excess depreciation on personal property (vs real property) is taxed as ordinary income (recapture) rather than capital gains. However: (1) you've had years of tax savings and cash flow, (2) depreciation would be recaptured anyway under regular depreciation, (3) 1031 exchanges can defer all gains and recapture, (4) time value of money makes earlier deductions more valuable.
Can I change my mind and reverse cost segregation later?
Generally no - once you've claimed accelerated depreciation, you can't reverse it. However, this is rarely desired since the tax benefits are substantial. If you sell early, you may pay some depreciation recapture, but you've already received years of tax savings and improved cash flow. Most owners find the immediate benefits far exceed any future recapture concerns.
Restaurant Tax Savings Resources
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