New Depreciation Rules for Hospitality

If you own a restaurant, bar, food truck, or entertainment venue, the One Big Beautiful Bill Act (OBBBA) just handed you one of the most significant tax planning opportunities in recent years.

The headline: 100% bonus depreciation is back, permanently. And the Section 179 expensing cap just got a major increase. Together, these changes give hospitality businesses more flexibility to invest in equipment, renovations, and growth while reducing their tax burden in Year 1.

Here's what you need to know.

100% Bonus Depreciation Is Permanently Restored

Before the OBBBA, bonus depreciation was on its way out. It had already dropped to 60% in 2024, was scheduled to fall to 40% in 2025, and would have eventually been eliminated altogether.

That phasedown is gone. The OBBBA permanently restores 100% bonus depreciation for qualified property placed in service after January 19, 2025.

What that means in practice: if you buy qualifying assets and put them to use in your business, you can deduct the full cost in the year of purchase rather than spreading it out over the asset's useful life.

What qualifies:

- Kitchen equipment

- Furniture and fixtures

- Computers and POS systems

- Vehicles

- Other tangible personal property, new or used, as long as it's new to your business

Example: A restaurant that purchases $200,000 in qualifying kitchen equipment can deduct the entire $200,000 on its federal tax return that year. No multi-year depreciation schedule. Full deduction in Year 1.

This kind of certainty simplifies capital planning significantly, especially for hospitality businesses that regularly invest in equipment and renovations.

Section 179 Expensing: Even More Room to Deduct

Section 179 is a separate accelerated deduction that allows businesses to immediately write off qualifying assets. The OBBBA made it even more generous:

- New deduction cap: $2.5 million for qualifying property placed in service in 2025

- Phase-out threshold: $4 million

For most restaurants and hospitality operations, this means you can deduct the full cost of eligible equipment and certain building improvements (like interior upgrades) directly on your tax return, limited only by taxable income.

Bonus depreciation vs. Section 179: These are two separate tools, and you can use both. The right approach depends on your income, entity structure, and long-term planning goals. Your CPA can help you determine which combination works best.

Purchase vs. Lease: Why It Matters More Than Ever

Whether you're outfitting a new space or buying a food truck, the purchase-versus-lease decision now carries bigger tax implications.

Purchased (Owned) Assets

When you own qualifying equipment, you're eligible for:

- 100% bonus depreciation in Year 1 (placed in service after Jan. 19, 2025)

- Section 179 expensing (up to the $2.5 million cap)

- Ordinary depreciation on any remaining basis

Leased Assets (Operating Lease)

With an operating lease, you don't own the asset. That means:

- Bonus depreciation and Section 179 are not available to the lessee

- Lease payments are deducted as rent or operating expenses

The bottom line: For costly equipment and fixtures, purchasing, whether outright or financed, often delivers significantly stronger tax advantages. Leasing offers more flexibility, but ownership should be seriously evaluated during the planning process.

What About the Building Itself?

The rules work differently for real property.

If you purchase your building: It's generally depreciated over 39 years under MACRS. You can't claim bonus depreciation on the building itself, but a cost segregation study can help accelerate depreciation on qualifying components (electrical, plumbing, certain finishes, etc.).

If you lease your space: Lease payments are deductible as rent in the year paid. This provides consistent annual tax benefits but doesn't produce the same large, accelerated deductions that come with ownership.

For hospitality businesses that own or are considering purchasing their space, a cost segregation study is worth exploring. It can unlock substantial deductions that would otherwise be spread over decades.

Don't Leave Money on the Table

These are some of the most generous business tax breaks in recent history, and they're especially relevant for high-investment industries like hospitality. But they're easy to miss if you're not planning proactively.

Common oversights:

- Not claiming full bonus depreciation on qualifying assets

- Leasing equipment when purchasing delivers stronger tax benefits

- Renovating your space without exploring Section 179 on interior improvements

- Skipping a cost segregation study on building purchases

- Making capital decisions without coordinating with your CPA

Let's Talk Tax Strategy

Understanding how these rules apply to your equipment purchases, vehicle acquisitions, interior renovations, and property decisions can meaningfully improve your tax position and cash flow.

These provisions interact with other tax rules and state conformity varies, so working with a CPA who understands your business is essential.

Ready to evaluate your options? Contact our tax team at 610.544.5900 or visit brinkersimpson.com.