Sources: Rev. Proc. 2025-32 (2026 inflation adjustments, incl. Section 179) · Rev. Proc. 2026-15 (2026 Section 280F limits) · IRS Publication 946 (How to Depreciate Property) · IRS Standard Mileage Rates · IRS Commercial Clean Vehicle Credit
Updated for tax year 2026, reflecting the One, Big, Beautiful Bill Act (OBBBA, signed July 4, 2025) and the IRS's 2026 inflation adjustments.
$2,560,000 Section 179 Limit — But Not for Every Vehicle
Section 179 allows businesses to deduct the full cost of qualifying property in the year it is placed in service instead of depreciating it over multiple years. OBBBA raised the base limit to $2,500,000 (indexed for inflation), and for tax years beginning in 2026 the Section 179 deduction limit is $2,560,000, reduced dollar-for-dollar once total Section 179 property placed in service exceeds $4,090,000 (Rev. Proc. 2025-32). However, passenger automobiles and other "listed property" face strict annual deduction limits under Section 280F — limiting the first-year write-off for standard cars regardless of cost. Section 179 is also limited to your taxable income from active trades or businesses, and a vehicle must be used more than 50% for business to qualify for Section 179 or bonus depreciation.
The 280F Luxury Auto Caps (Section 179 + Bonus Depreciation)
For passenger automobiles (generally GVWR of 6,000 lbs or less) placed in service in 2026, total depreciation — including Section 179 and bonus depreciation — is capped at the amounts below (Rev. Proc. 2026-15). The caps are reduced proportionally if business use is under 100%.
| Year of Service | With Bonus Depreciation (2026) | Without Bonus Depreciation (2026) |
|---|---|---|
| Year 1 | $20,300 | $12,300 |
| Year 2 | $19,800 | $19,800 |
| Year 3 | $11,900 | $11,900 |
| Year 4+ | $7,160 per year | $7,160 per year |
A $60,000 sedan used 100% for business can only be deducted at $20,300 in year 1 — not the full cost. This is why heavy SUVs and trucks are popular for business vehicle purchases: they escape the 280F caps.
The Heavy Vehicle Loophole: SUVs Over 6,000 lbs
Vehicles with a Gross Vehicle Weight Rating (GVWR) over 6,000 lbs are not passenger automobiles for Section 280F purposes, so the luxury auto caps don't apply. For heavy SUVs (GVWR 6,001–14,000 lbs), the Section 179 portion is capped at $32,000 for 2026 (Rev. Proc. 2025-32), but 100% bonus depreciation can cover the rest of the cost. With more than 50% business use, a heavy SUV can therefore be fully deducted in year 1 (multiplied by the business-use percentage).
Popular vehicles that often exceed 6,000 lbs GVWR (confirm on the door-jamb sticker for your exact configuration):
- Ford F-150, F-250, F-350 (pickup trucks)
- Chevrolet Suburban, Tahoe, GMC Yukon
- Ford Expedition
- Tesla Model X (most configurations)
- Toyota Land Cruiser, Sequoia
- Ram 1500, 2500 (pickup trucks)
Important: The $32,000 Section 179 cap applies to SUVs over 6,000 lbs GVWR. It does not apply to vehicles over 14,000 lbs GVWR, cargo vans with no seating behind the driver's seat and no body section protruding more than 30 inches ahead of the windshield, vehicles seating more than 9 passengers behind the driver's seat, or pickups whose cargo bed is at least 6 feet long and not readily accessible from the passenger compartment (IRC §179(b)(5)(B); see Publication 946). Many short-bed pickups (e.g., 5.5-ft beds) are therefore subject to the SUV cap.
MACRS Depreciation: The Standard Path
Without Section 179 or bonus depreciation, business vehicles depreciate under MACRS 5-year property using the 200% declining balance method (switching to straight-line when advantageous). For a $35,000 vehicle with 80% business use:
| Year | MACRS Rate | Deductible Basis (×80%) | Deduction | Cumulative |
|---|---|---|---|---|
| 1 | 20% | $28,000 | $5,600 | $5,600 |
| 2 | 32% | $28,000 | $8,960 | $14,560 |
| 3 | 19.2% | $28,000 | $5,376 | $19,936 |
| 4 | 11.52% | $28,000 | $3,226 | $23,162 |
| 5 | 11.52% | $28,000 | $3,226 | $26,387 |
| 6 | 5.76% | $28,000 | $1,613 | $28,000 |
Note: These figures are subject to the 280F caps for passenger autos — actual deductions may be lower than the MACRS calculation suggests if the car falls under the luxury auto rules. (For this $35,000 example at 80% business use, the 2026 caps of $9,840 in year 1 and $15,840 in year 2 don't bind.) This "standard path" applies when you elect out of bonus depreciation and don't claim Section 179 — for example, to spread deductions into future higher-income years.
Bonus Depreciation: 100% Again, Permanently
Under the 2017 Tax Cuts and Jobs Act, bonus depreciation was phasing down (80% in 2023, 60% in 2024, 40% in 2025). OBBBA reversed that: 100% bonus depreciation is permanent for qualified property acquired after January 19, 2025 (IRC §168(k), as amended; see Rev. Proc. 2026-15).
- Acquired after January 19, 2025: 100% bonus depreciation, with no scheduled phase-down
- Acquired before January 20, 2025 (binding contract) but placed in service in 2026: 20% under the old phase-down schedule
- Used vehicles qualify if they are new to you (not previously used by you or a related party)
For passenger autos, bonus depreciation raises the year-1 280F cap by $8,000 (from $12,300 to $20,300 in 2026) rather than allowing full expensing. For heavy trucks and SUVs not subject to 280F, 100% bonus depreciation can write off the entire business-use cost in year 1 — and unlike Section 179, it isn't limited by business income, so it can create a net operating loss. You can elect out of bonus depreciation by class of property if a smaller first-year deduction suits you better.
EV Business Credit: Section 45W Has Ended
The Inflation Reduction Act's Section 45W Commercial Clean Vehicle Credit (up to $7,500 for vehicles under 14,000 lbs GVWR and up to $40,000 for heavier vehicles) was terminated early by OBBBA. Per the IRS, the credit is not available for vehicles acquired after September 30, 2025 (IRS — Commercial Clean Vehicle Credit).
- A vehicle placed in service after September 30, 2025 qualifies only if it was acquired on or before that date — shown by a binding written contract and a payment made by September 30, 2025
- The consumer New Clean Vehicle Credit (Section 30D) and Previously-Owned Clean Vehicle Credit (Section 25E) ended on the same date (IRS — Clean vehicle tax credits)
- An EV bought for business in 2026 gets no federal credit, but it is still depreciable like any other business vehicle — including 100% bonus depreciation and Section 179, subject to the 280F caps above if its GVWR is 6,000 lbs or less
Example: a Tesla Model X (typically over 6,000 lbs GVWR) bought in 2026 for $90,000 and used 100% for business generates no 45W credit, but 100% bonus depreciation can deduct the full $90,000 in year 1. A Tesla Model 3 (under 6,000 lbs) is a passenger automobile, so its year-1 deduction is capped at $20,300.
Depreciation Recapture: Section 1245
When you sell a business vehicle, the IRS "recaptures" depreciation deductions you took while owning it. The gain from the sale, up to the total depreciation claimed, is taxed as ordinary income under Section 1245 — not the lower capital gains rate.
Example: You purchased a truck for $40,000 and claimed $32,000 in MACRS depreciation over 5 years. Adjusted basis = $40,000 − $32,000 = $8,000. You sell it for $18,000.
- Total gain: $18,000 − $8,000 = $10,000
- Section 1245 recapture: $10,000 (all ordinary income, taxed at your marginal rate)
- If the sale price exceeded $40,000, the excess over cost would be Section 1231 gain (generally taxed like long-term capital gain)
Standard mileage rate users: part of each business mile is treated as depreciation and reduces the vehicle's basis — 35 cents per mile for 2026 (33¢ for 2025, 30¢ for 2024, 28¢ for 2023; see IRS Notice 2026-10). When you sell the vehicle, gain is figured using that reduced basis. The 2026 business standard mileage rate is 72.5¢ per mile for January 1 – June 30 and 76¢ per mile for July 1 – December 31, after the IRS's mid-year increase (IRS Standard Mileage Rates). Note that you must use the standard mileage rate in the first year a vehicle is used for business to be able to use it in later years; once you've claimed MACRS, Section 179, or bonus depreciation on a vehicle, you can't switch to the standard mileage rate for it.
Choosing Between Standard Mileage and Actual Expense
Use our Rideshare Tax Calculator and Delivery Driver Tax Calculator to estimate your deductions under the standard mileage method. For a comprehensive view of vehicle registration costs by state, see the Vehicle Registration Calculator.
This is general information, not tax, legal or financial advice. How we source our data · Report an error