Why Modular Construction Delivers Faster Tax Benefits for QSRs and Developers
- chriscrawfordbills
- Aug 21
- 3 min read
Why wait 39 years to recover your investment?
That’s the critical question every QSR franchisee, retailer, and commercial developer should ask before breaking ground on their next project. When it comes to construction, not all buildings are treated equally in the eyes of the IRS. Modular construction offers a little-known but powerful financial advantage: accelerated depreciation.
Accelerated Depreciation Explained
In traditional construction, buildings are typically classified as real property under Section 1250 of IRS tax code, which means depreciation stretches over 39 years. That’s nearly four decades before an owner can fully write off the cost of their investment.
Modular buildings, however, are classified as Section 1245 property per IRS rules, which is treated more like equipment. This means they can qualify for depreciation schedules as short as 7–15 years—a fraction of the traditional timeline. For QSRs and commercial developers, this difference can be transformative.
Faster Write-Offs = Stronger Cash Flow
For franchise operators, cash flow is king. Being able to write off construction costs over 7–15 years instead of 39 means:
Quicker ROI: Faster recovery of upfront investments.
Tax Savings Now: Reduced taxable income in the early years of operation.
Reinvestment Power: Extra cash flow to open new locations, upgrade equipment, or expand menus.
Think of it this way: a $3 million modular build depreciated over 15 years allows for a $200,000 annual deduction—versus just over $76,000 a year under the 39-year schedule. That’s a difference that directly impacts profitability.
Real-World Relevance for QSRs
The QSR industry thrives on speed-to-market. Franchisees want to open doors quickly, generate revenue, and move on to the next location. Modular construction already offers a significant advantage here: buildings can be fabricated in the factory while site prep happens simultaneously, cutting timelines by 30%–50%.
Pair that with accelerated depreciation, and the financial picture gets even brighter. Not only are operators generating revenue faster, but they’re also realizing tax benefits much sooner. For multi-unit franchisees, this can support aggressive growth strategies while minimizing long-term tax burdens.
Modular buildings may also qualify as a "tangible asset" in the eyes of the IRS and can apply significant tax deductions using Section 179 and / or the Modified Accelerated Cost Recovery System (MACRS) to expense costs since the building doesn't qualify as permanent real estate. Reasoning is that modular or pre-fab buildings can be mobile, adaptable and more functional. Many modular structures including drive-thru QSRs qualify because they aren't considered permanent. Utilizing a "plug & play" strategy, provides additional methods to accelerate the cost savings to an operator.
Modular Construction Example
A QSR builds a $500,000 modular drive-thru unit.
If it qualifies as Section 1245 property: An owner can deduct the entire $500,000 investment in year 1.
If the Section 179 limitation is exceeded, the balance can be depreciated over under MACRS (7-15 years).
A traditional stick-built location (39-year property) would not qualify for Section 179 or shorter MACRS schedules.
The Bigger Picture for Developers
It’s not just QSRs. Retailers, entertainment venues, and mixed-use developers can also leverage modular’s tax benefits. With a pre-fab building, investors can treat certain structures as shorter-lived assets, accelerating cost recovery and making their portfolios more attractive.
In a real estate environment where interest rates and construction costs are rising, these tax efficiencies are a meaningful tool for balancing the books.
Closing Thought
Modular construction isn’t just about faster builds—it’s about faster savings. For QSR operators, retailers, and developers, accelerated depreciation means recouping costs in years, not decades.
As the industry continues to evolve, those who embrace modular technology will not only gain a speed-to-market edge but also a speed-to-savings advantage that traditional construction simply can’t match.
Bottom line: Modular construction gives you the building you need faster—and the tax benefits you deserve sooner
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