At a glance:

• The main takeaway: Restaurant and franchise owners can accelerate tax deductions and improve cash flow by reclassifying certain assets into shorter depreciation timelines through a cost segregation study.
• Impact on your business: Provisions introduced under the One Big Beautiful Bill — including 100% bonus depreciation for qualified property and expanded Section 179 expensing — have made cost segregation studies an even more appealing prospect. 
• Next steps: Schedule a consultation with Aprio’s Cost Segregation Services team to find out whether a study makes sense for your business.

Are you a restaurant or franchise leader who owns a building or just recently completed a renovation? You could reap significant tax savings by commissioning a cost segregation study.

In fact, the timing to pursue a cost segregation study couldn’t be better: due to recent changes under the One Big Beautiful Bill (OBBB), certain assets now qualify for 100% bonus depreciation in the first year, which can significantly accelerate your tax deductions and help you free up capital. In addition, expanded Section 179 expensing under the OBBB could offer you even more opportunities to reap savings, particularly for property improvements that don’t qualify for bonus depreciation. Together, these provisions make cost segregation an especially powerful strategy for restaurant and franchise owners who are looking to reduce taxes and reinvest in their businesses.

Here is a primer on the basics of cost segregation and how to know whether your restaurant or franchise could benefit from a study.

Food for thought: How cost segregation works

At its core, cost segregation is a strategic tax planning tool that allows businesses to reclassify components of their property into shorter-lived asset classes. These asset classes typically span 5-, 7-, or 15-year increments instead of the standard 39-year depreciation timeline for commercial real estate. As a restaurant or franchise owner, this means that you can depreciate assets like kitchen equipment, parking lots, lighting, signage, and landscaping much faster and unlock more immediate tax savings.

Compared to other commercial properties, restaurants and franchise locations tend to have a higher proportion of qualifying assets due to their specialized buildouts and the types of equipment they operate.

OBBB changes make cost segregation more appealing

In addition to the new bonus depreciation rules — which allow you to deduct 100% of qualifying property in the first year — Section 179 expensing is another area that has improved under the OBBB.

When combined with bonus depreciation, Section 179 is a powerful tool that can work hand-in-hand with cost segregation — and in fact, Section 179 may be the more advantageous option for you in certain situations. Unlike bonus depreciation, Section 179 is often more widely adopted by taxpayers at the state level, which means more restaurants and franchises can benefit from immediate deductions. What’s more, expanded Section 179 expensing also covers certain property improvements that don’t qualify for bonus depreciation, such as roof repairs or a new HVAC system, among other types of projects.

Given the permanent 80% limitation on net operating losses (NOLs), Section 179 expensing can provide you with greater flexibility when managing your taxable income. When you pair it with a cost segregation study, Section 179 can also help you maximize deductions, improve cash flow, and enhance the overall tax benefits of owning or renovating your restaurant property.

When to consider a cost segregation study for your restaurant or franchise

Remember,you don’t need to complete a cost segregation study in the same year you purchase or renovate your property. Instead, you could opt to do a “lookback study,” which allows you to retroactively adjust your depreciation and catch up on tax deductions you may have missed. A lookback study may be a better option for you if you recently completed a major renovation or expansion, purchased a new location, or refitted your existing location.

To better illustrate how this may work practically in your own business, consider the following hypothetical example:

The Situation: A local, family-owned restaurant has purchased a new building for $3 million. The restaurant is well-established with a loyal following, and the owners have determined that they need an upgraded space to accommodate their growing clientele.

Findings Identified in Cost Segregation Study: The owners hire a CPA and advisory firm to conduct a cost segregation study. The study identifies$750,000 in short-term property, which can be currently deducted and provide the owners with immediate tax savings.

Tax Impact: The owners will receive an immediate reduction in their taxable income, improve their cash flow situation, and even free up more funds to reinvest back in the business, hire more staff, or expand further.

Keep in mind that this is a purely hypothetical example showcasing how much cost segregation (especially under the new OBBB provisions) can impact tax relief. Cost segregation study findings and results will vary based on your business’s unique situation.

But even if your restaurant isn’t worth $3 million like the property in the example above, the cost segregation study you commission may still uncover thousands of dollars in shorter-lived assets, which can improve your tax position and your ability to reinvest in your business’s growth.

If you own franchise locations that follow a standard design as opposed to a unique restaurant concept, you can still benefit from performing a cost segregation study, especially if you own the property as opposed to leasing it. Post-study, you’ll receive documentation that can help you allocate asset values, which can be a major help if you undergo an IRS audit or need to produce detailed reporting for your parent corporation.

The bottom line

With the passage of the OBBB, there is an added incentive for restaurant and franchise owners to explore cost segregation imminently. If you have purchased a property or expanded your business recently, a study can provide the cash flow and tax benefits you need to fuel future growth.

With more than 25 years of combined experience, Aprio’s Cost Segregation team can provide you with a broad range of fixed asset studies, including cost segregation for acquisitions, new construction, new construction improvements, fixed asset reviews, cost allocation studies, repairs and maintenance studies, and disposition studies. Schedule a consultation with our team to learn more.

Related Resources

• About Aprio’s Restaurant, Franchise & Hospitality Practice
• The One Big Beautiful Bill: Education Hub
• How Does the OBBB Impact Restaurants, Franchises, and Hospitality Organizations?