Restaurant owners have highly tempting tax incentives when it comes to investing in the improvement of their business. Under tax rules signed in 2015 and revised this past December, they may be able to deduct any renovations under an accelerated 15-year depreciation schedule. Normally, the renovation expenses would have to be deducted under a protracted 39-year depreciation schedule — despite the fact that few restaurant facilities are in service that long. These tax benefits could come alongside the 50% “bonus deduction” for the cost of items purchased for the renovations, which we discussed in the context of hotels in a recent post. Under the tax rules, restaurant owners may wish to seek out loans for restaurants that can help them finance improvements. By combining the depreciation deduction with immediate bonus depreciation and the deduction on interest for business loans, the restaurant can improve operations while reaping substantial tax benefits. Raising revenues while spending less on taxes? Now that’s a win-win!
The relevant tax laws that apply to restaurant improvements fall under Section 179 of the IRS tax code. According to this section, business owners who invest in property improvements related to their business service or product can deduct their renovation expenses under a 15-year depreciation schedule. According to the section, the depreciation deduction can apply to any “qualified restaurant property,” which refers to any building where more than half of its square footage is “devoted to preparation of meals and seating for on-premise consumption of prepared meals.” Also of note is the fact that building expansions or infrastructure improvements are not eligible for the 15-year depreciation schedule. Thanks to this law, restaurant owners can improve their properties and deduct the expenses in a favorable way, encouraging investment in diner experience as well as improved operations.
In addition to using an advantageous depreciation schedule, the cost of restaurant improvement property itself can be eligible for an extra “bonus” deduction up to 50% of the item’s value. For restaurants, this bonus can therefore apply to furniture, non-structural fixtures, kitchen equipment and other items. In effect, items eligible for depreciation end up deducting 150% of their value over the course of 15 years. Restaurant owners can therefore enjoy tangible benefits when they elect to upgrade their property with improved equipment, fixtures and furniture.
Restaurant owners considering improvements to their property — or ways to reduce their tax burden — may want to speak to their tax accountant regarding these beneficial tax credits and deductions. Afterwards, they can seek out loans for restaurants that require no collateral and offer low fixed rates. Find out which restaurant financing products could be a perfect fit for your needs when you apply for a free, no-obligation quote from ARF Financial today. Click here to start the process, and find out what you might qualify for in as little as 48 hours!