Distilleries, Breweries, and Restaurants: A Hidden Tax Strategy to Help Fund Growth (and Financing Costs)
Mike’s podcast talk with Joe includes the part no one romanticizes: financing and capital costs.
Joe says it plainly:“It’s a hard business. It’s hard.”
And he’s right. Distilleries, breweries, and restaurant owners face a uniquely difficult financial reality: the business can be profitable on paper, but cash flow gets crushed early because so much capital is tied up in real estate, tenant improvements, and specialized equipment.
The good news? The tax code has a powerful tool that can materially improve early cash flow, and the IRS just issued new guidance that makes it even more valuable.
What’s New: IRS Notice 2026-11 and Enhanced 100% Bonus Depreciation
The IRS recently released Notice 2026-11, which provides interim guidance on §168(k) bonus depreciation after changes made by the One, Big, Beautiful Bill Act (OBBBA).
The most important takeaway for business owners: 100% bonus depreciation is now permanent for qualified property acquired and placed in service after January 19, 2025. In other words, the “phase-down” that was reducing bonus depreciation each year is gone for qualifying assets acquired after that date. The notice also confirms taxpayers may rely on the interim guidance now, even before proposed regulations are finalized, as long as they apply the guidance consistently.
Why This Matters for Distilleries and Breweries
Distilleries and breweries are often real estate-heavy businesses that include:
- Building purchase or new construction
- Major interior buildouts
- Specialized electrical and plumbing
- Production rooms, drains, ventilation, and temperature control
- Tasting rooms and retail finishes
- Outdoor site improvements and utility runs
The issue is that much of this gets lumped into 39-year depreciation if it’s not properly analyzed. That’s where cost segregation studies come in.
Cost Segregation: Turning “The Building” into Real Deductions
A cost segregation study is an engineering-based tax analysis that breaks a property into components and properly classifies them into shorter depreciation lives:
- 5-year property (equipment, certain dedicated electrical, specialty systems)
- 7-year property
- 15-year property (land improvements and site work)
- 39-year property (true structural building)
When paired with 100% bonus depreciation, this can allow owners to write off a meaningful portion of the purchase price immediately. For many capital-intensive properties, it’s common to see 20% to 40% of the total cost shifted into categories eligible for accelerated depreciation, sometimes more depending on the buildout, and the purpose it serves. Here are some common examples of distillery components that get carved out of 39-year building depreciation:
- Production and distilling areas: dedicated electrical, piping, drains, and ventilation systems installed specifically to serve distilling operations.
- Fermentation and processing zones: temperature control systems, floor coatings, trench drains, washdown infrastructure, and utility systems tied directly to production.
- Bottling and packaging areas: compressed air lines, specialized lighting, dedicated electrical, and layout-driven improvements that support bottling operations.
- Barrel storage and aging spaces: specialized racking systems, humidity/temperature systems, and certain dedicated building improvements required for aging and compliance.
- Site and utility improvements: exterior concrete pads, loading areas, dedicated utility runs, and production-driven site work.
In other words, a distillery buildout often includes substantial costs that exist for one reason: to make alcohol at scale, not simply to “house a business.”
That distinction is exactly what cost segregation is designed to capture. And for owners facing the same reality Joe Cannella describes, a business that’s exciting, but capital-intensive and hard to finance, pulling forward deductions can translate into real first-year cash flow that helps cover loan costs, working capital needs, and early-stage scaling expenses.
A Key Timing Detail Owners Should Know
Notice 2026-11 places major emphasis on the acquisition timing rules and confirms the IRS will apply rules consistent with the existing “written binding contract” and “self-constructed property” framework, but using January 19, 2025 as the new anchor date. That means the timing of when a project becomes binding, and when construction begins, can materially affect bonus eligibility.
Bottom Line
For distilleries, breweries, and restaurants, the “hard part” is usually not the product. It’s the capital.
Joe Cannella’s story is a reminder that scaling requires serious investment, but it also highlights why owners should treat tax planning as part of their growth strategy, not an afterthought.
With IRS Notice 2026-11 and the permanent return of 100% bonus depreciation, cost segregation is one of the most powerful tools available for real estate owners looking to:
- increase first-year deductions,
- improve cash flow,
- and reduce the pressure of financing in a high-cost industry.