Restaurant · QSR · bar · café · tenant / leasehold study

Restaurant build-out cost segregation

You leased the space and spent six or seven figures turning it into a working kitchen and dining room. A restaurant build-out is the highest-reclassifying tenant study there is — the equipment is the building.

Start your study → Typically reclassifies 80–95% of build-out cost

Restaurant cost segregation analyzes the build-out you paid for as the tenant — not a property purchase price. Restaurants and QSRs are the most equipment-dense build-outs in commercial real estate: the Type I exhaust hood, walk-in coolers and freezers, the cooking line, prep stations, bars, and decorative lighting are all 5-year personal property, not building shell. Layer in 15-year Qualified Improvement Property (QIP) for the interior HVAC distribution, partitions, and finishes, and a tenant restaurant build-out commonly reclassifies 80–95% of its cost into accelerated, bonus-eligible depreciation.

From the Type I hood and Ansul suppression system to the walk-in boxes, grease interceptor, and drive-thru window, a restaurant is engineered for food service — not general occupancy. That's why it carries more short-life property than almost any other tenant space.

The basis analyzed is your build-out cost — not a property purchase price (you don't own the building). Ranges below are illustrative engineering estimates as a share of that build-out cost.

Restaurant kitchen Type I exhaust hood over the cooking line — 5-year personal property in a cost segregation study

What reclassifies in a restaurant & qsr build-out

Component MACRS life Basis share
Kitchen hood, exhaust & fire-suppression (Type I / Ansul)
Process exhaust dedicated to cooking, not building HVAC
 5-year 6–12%
Walk-in coolers & freezers
Modular refrigeration — removable personal property
 5-year 5–10%
Cooking line, prep & warewashing equipment
Ranges, fryers, ovens, prep tables, dish machines
 5-year 8–18%
Bar, back-bar & beverage systems
 5-year 3–8%
Dedicated kitchen electrical, gas & plumbing connections
Connections to specific equipment vs. general building distribution
 5 / 15-year 5–10%
Grease interceptor & specialty drainage
 15-year QIP 1–3%
Drive-thru / pickup-window infrastructure
QSR canopy, menu boards, order-confirmation systems
 5 / 15-year 1–4%
Patio & outdoor-dining improvements
 15-year 1–4%
Dining millwork, booths & decorative lighting
 5 / 7-year 4–9%
Interior partitions, ceilings & finishes
 15-year QIP 8–16%

This is the segment-specific view. For the full 5- / 7- / 15-year QIP framework and primary sources, see the tenant-improvement cost segregation overview →

Worked example

Scenario
Full-service restaurant build-out (tenant-funded)
Build-out basis
$600,000
Illustrative reclassification
85% = $510,000 into accelerated MACRS
Estimated year-1 deduction
$510,000 (100% §168(k) bonus on eligible property)
Estimated federal tax savings
$188,000 at 37% marginal
Study fee
$2,995

How the $600,000 build-out splits by MACRS class

Recovery class Reclassified amount % of build-out
5-year personal property$330,00055%
7-year property$30,0005%
15-year QIP & land improvements$150,00025%
39-year (remaining structural)$90,00015%

Illustrative and modeled — year-1 figures depend on build-out scope, §168(k) eligibility, §469 status, entity structure, and your CPA's tax position when the deduction lands. Not a filing figure. Every leasehold order is reviewed by our team before delivery.

Frequently asked

Does the kitchen equipment count if I bought it separately from the build-out?
Yes. Whether it's in your construction contract or invoiced separately, kitchen equipment you paid for and placed in service is 5-year personal property. Your fixed-asset register and equipment invoices are the cleanest source — share them and we classify each line.
I have a landlord allowance (TI allowance). Does that change anything?
It can. Depreciation follows who owns and funded the improvements. If the landlord funded and owns a portion, that portion is theirs; the part you funded out of pocket is yours. We confirm the split up front from your lease and construction draws — it's the first question on the order form.
Can I combine my equipment purchases with the build-out in one study?
Yes — share both. A single restaurant study covers the construction build-out and the freestanding equipment you placed in service, so you get the fullest picture of your 5-, 7-, and 15-year property in one place.

Keep going

Everything you need to scope a restaurant cost segregation engagement:

Other tenant build-out studies

You paid for the build-out. Get the depreciation you're owed.

Start your study and upload your build-out documents, or send your depreciation schedule and construction budget and we'll talk it through. Every leasehold order is reviewed by our team before delivery.