IRS vehicle depreciation is calculated by taking what you paid for the vehicle, multiplying by the share of miles you drive for business, and then running that depreciable basis through three deduction methods in order: Section 179 expensing, bonus depreciation, and MACRS. For passenger vehicles placed in service in 2026, the first-year deduction is capped at $20,300 when bonus depreciation applies, no matter what the raw math says. Heavier vehicles rated above 6,000 pounds escape that cap and can often be written off entirely in year one.
Start With Business Use and Cost Basis
Two numbers drive everything: the vehicle’s cost basis and your business-use percentage.
Cost basis is the purchase price plus sales tax and any capital improvements, such as a work-specific cargo system. Business-use percentage is the share of total annual miles driven for business. Drive 20,000 miles in a year with 14,000 of them for business and your percentage is 70%. Multiply cost basis by that percentage and you have the depreciable basis — the figure every deduction method works from.
The IRS draws a hard line around what counts. Driving from home to your regular workplace is commuting and is never deductible, regardless of distance or whether you take calls on the way. Driving between work locations during the day, visiting clients, or going to a temporary job site does count.1Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses Misclassifying commuting as business inflates your percentage and creates audit exposure. The percentage has to be backed by a contemporaneous mileage log, covered further down.
Depreciation Only Applies If You Use the Actual Expense Method
You have two ways to deduct vehicle costs: the standard mileage rate (72.5 cents per mile for 2026) or actual expenses.2Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents Per Mile The standard rate bakes depreciation into the per-mile figure, so you cannot claim separate depreciation on top of it. Everything in this article assumes you are using actual expenses.
One trap: if you choose actual expenses in a vehicle’s first business year, you generally cannot switch to the standard mileage rate for that vehicle later.3Internal Revenue Service. Topic No. 510, Business Use of Car Starting with the mileage rate preserves flexibility; starting with actual expenses locks you in.
The Three Deduction Methods, Applied in Order
Once you have a depreciable basis, three methods compete to recover it. They run in sequence: Section 179 first, bonus depreciation on what remains, then MACRS on anything still left.
Section 179 Expensing
Section 179 lets you deduct the full cost of qualifying business property in the year you place it in service. For tax years beginning in 2026, the maximum Section 179 deduction is $2,560,000, with a dollar-for-dollar phaseout once total Section 179 property placed in service exceeds $4,090,000.
Two limitations usually matter more than the headline cap. First, your Section 179 deduction cannot exceed the taxable income from your active business operations.4eCFR. 26 CFR 1.179-2 – Limitations on Amount Subject to Section 179 Election If the business earns $40,000 and you elect to expense a $55,000 vehicle, only $40,000 comes off this year; the remaining $15,000 carries forward. Second, passenger vehicles are still subject to the luxury auto caps described below, which usually clip the Section 179 deduction well before the general ceiling matters.
Heavy SUVs rated between 6,001 and 14,000 pounds GVWR have their own ceiling: $32,000 in Section 179 for 2026. That is lower than the general limit but much higher than what passenger vehicles ever get, which is why the heavy-SUV strategy exists.
Bonus Depreciation
Bonus depreciation takes a percentage of what’s left after Section 179 and deducts it immediately. The One, Big, Beautiful Bill Act restored a permanent 100% bonus depreciation rate for qualifying property acquired after January 19, 2025.5Internal Revenue Service. One, Big, Beautiful Bill Provisions For a vehicle acquired and placed in service after that date, bonus depreciation wipes out the entire remaining depreciable basis in year one — subject again to the passenger vehicle caps.
Vehicles acquired on or before January 19, 2025 follow the earlier phasedown: 80% for 2023, 60% for 2024, 40% for 2025.6Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill There is also an optional election to claim only 40% bonus depreciation (instead of 100%) for property placed in service during a taxpayer’s first tax year ending after January 19, 2025, useful for taxpayers who want to spread deductions across years.7Internal Revenue Service. Notice 2026-11 – Interim Guidance on Additional First Year Depreciation Deduction
Bonus depreciation requires business use above 50%. Fall to that threshold or below and you lose access entirely, and the recapture rules kick in.
MACRS for What’s Left
Any depreciable basis still remaining after Section 179 and bonus depreciation gets recovered under the Modified Accelerated Cost Recovery System. Business vehicles are 5-year property under MACRS,8Internal Revenue Service. Publication 946 (2025), How To Depreciate Property which uses 200% declining balance and front-loads the earlier years. The half-year convention stretches the five years across six tax years, with these percentages applied to the original depreciable basis each year:
- Year 1: 20.00%
- Year 2: 32.00%
- Year 3: 19.20%
- Year 4: 11.52%
- Year 5: 11.52%
- Year 6: 5.76%
A vehicle with a $30,000 depreciable basis and no Section 179 or bonus depreciation would generate a $6,000 year-one MACRS deduction (20% of $30,000), $9,600 in year two, and so on.
Passenger Vehicle Dollar Caps
Most vehicle depreciation calculations hit a ceiling long before the math runs out. The IRS imposes annual dollar caps, often called luxury auto limits, on passenger automobiles: four-wheeled vehicles made primarily for public roads with an unloaded gross vehicle weight (or GVWR for trucks and vans) of 6,000 pounds or less.1Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses No matter what Section 179, bonus depreciation, and MACRS add up to, your actual deduction cannot exceed the annual cap.
For a passenger automobile placed in service in 2026 with bonus depreciation applied, the caps are:9Internal Revenue Service. Rev. Proc. 2026-15
- Year 1: $20,300
- Year 2: $19,800
- Year 3: $11,900
- Year 4 and later: $7,160
Without bonus depreciation, the first-year cap drops to $12,300; the other years are unchanged.9Internal Revenue Service. Rev. Proc. 2026-15 All of these caps are then reduced by your business-use percentage. Use the vehicle 80% for business and your effective first-year cap with bonus depreciation is $16,240 (80% of $20,300).
Depreciation blocked by the cap is not lost. Once the normal MACRS recovery period ends, you keep deducting the unrecovered basis at the “each succeeding year” rate of $7,160 (adjusted for business use) until the full amount is recovered.1Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses
A Worked Example
Buy a $52,000 sedan in March 2026, use it 100% for business, and elect bonus depreciation. On paper, Section 179 and 100% bonus depreciation cover the entire cost in year one. In practice, the luxury auto cap limits your year-one deduction to $20,300. Year two: $19,800. Year three: $11,900. Year four and each year after: $7,160, until the full $52,000 is recovered. A deduction that looks like a one-year write-off takes roughly seven or eight years to actually flow through the return.
Heavy Vehicles Over 6,000 Pounds Skip the Caps
Vehicles with a GVWR above 6,000 pounds are not subject to the passenger vehicle dollar caps. This is the tax math behind the heavy-SUV strategy. A qualifying SUV, truck, or van can absorb a Section 179 deduction up to the $32,000 SUV cap for 2026, plus 100% bonus depreciation on the remaining basis, with no annual dollar ceiling in the way.
Take a $70,000 heavy SUV used 100% for business and placed in service in 2026: $32,000 of Section 179, 100% bonus depreciation on the remaining $38,000, and the full $70,000 comes off in year one. The vehicle has to genuinely exceed 6,000 pounds GVWR as rated by the manufacturer, and business use has to stay above 50% to qualify for both Section 179 and bonus depreciation.
A separate note for leased vehicles: leasing is not depreciation at all. You deduct the business share of lease payments as an operating expense, and the luxury auto caps don’t apply directly, though a “lease inclusion amount” claws back some benefit on higher-value leases.3Internal Revenue Service. Topic No. 510, Business Use of Car If you claim the Section 30D clean vehicle credit on an EV used for business, reduce the depreciable basis by the credit amount before running any of these calculations.10Office of the Law Revision Counsel. 26 USC 30D – Clean Vehicle Credit
Depreciation Recapture: When the IRS Takes Some Back
Depreciation isn’t free. The IRS reclaims it in two common situations.
If your business-use percentage falls to 50% or below in any year after the vehicle is placed in service, you have to switch retroactively from MACRS to the slower straight-line Alternative Depreciation System. The difference between what you already deducted and what you would have deducted under straight-line is reported as ordinary income in the year the drop occurs.11CCH AnswerConnect. MACRS ADS and Depreciation Recapture Required if Passenger Automobile or Listed Property Used 50 Percent or Less for Qualified Business Use You also lose Section 179 and bonus depreciation for that vehicle going forward. Aggressive first-year write-offs can backfire if your usage pattern shifts.
When you sell a business vehicle for more than its adjusted basis (original cost minus total depreciation claimed), gain is taxed as ordinary income up to the amount of depreciation taken, under Section 1245.12Internal Revenue Service. Publication 544, Sales and Other Dispositions of Assets Buy a truck for $40,000, claim $25,000 in depreciation (adjusted basis $15,000), and sell for $22,000: the $7,000 gain is all ordinary income because it’s less than the $25,000 of depreciation. Sell the same truck for $45,000 and $25,000 is ordinary income while the $5,000 above original cost is capital gain. The harder you depreciated, the more there is to recapture at sale.
Records and Form 4562
The IRS requires a contemporaneous mileage log — entries made at or near the time of each trip, not reconstructed later. Each entry needs the date, starting point and destination, a concrete business purpose (not just “client meeting”), and the miles driven. Record odometer readings at the start and end of each year.
Vehicle depreciation is reported on Form 4562, Depreciation and Amortization, which captures cost, date placed in service, business-use percentage, recovery period, and method.13Internal Revenue Service. About Form 4562, Depreciation and Amortization The deduction flows to Schedule C for sole proprietors or to the appropriate line on a partnership or corporate return.
Keep purchase documents, depreciation schedules, and mileage logs for the full time you own the vehicle, plus at least three years after you sell or scrap it.14Internal Revenue Service. How Long Should I Keep Records Toss the records early and you lose the ability to prove your basis and depreciation history if the IRS ever asks.