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Depreciating your vehicle on your taxes

Updated: Jul 18, 2022

What you need to know about the business vehicle depreciation deduction

  • You must use the actual expense method for vehicle depreciation

  • Vehicle depreciation has special rules compared to other business equipment

  • Rules apply to vehicles that qualify as "passenger vehicles"

  • There are two ways to deduct vehicle depreciation

What is the vehicle depreciation deduction?

Your business car declines in value over time due to wear and tear. The vehicle depreciation deduction allows business owners to write off the decline in the value of the vehicle.

You can't take this deduction if you've already deducted business miles. That's because the standard mileage rate already factors in depreciation.

The business vehicle depreciation deduction has some special rules to be aware of. These apply to most types of vehicles. Typically, it results in a lower yearly deduction than other property.

What are the annual vehicle depreciation deduction limits for passenger vehicles? The depreciation limits for passenger vehicles have changed with the 2018 tax law. Here are the greatest allowable depreciation deductions for vehicles placed in service after Dec. 31, 2017:

  • $10,000 for the first year

  • $16,000 for the second year

  • $9,600 for the third year