Vehicle depreciation and Section 179: the 2026 limits
When you buy a vehicle for business you usually cannot deduct the whole cost at once. Light cars have yearly dollar caps. Heavier vehicles can be written off much faster. Here is how it works in 2026.
Prepared by Prem Tax and Accounting Corp. Last checked against official sources on October 20, 2026.
Step 1: how heavy is it?
The tax rules treat vehicles by weight. In general, a car, truck or van is a "passenger automobile" with yearly caps if its weight is 6,000 pounds or less (unloaded weight for cars, gross vehicle weight for trucks and vans). Heavier vehicles are not capped the same way. Look at the gross vehicle weight rating (GVWR) label on the driver's door frame, and confirm the rule for your type of vehicle before you buy.
Some vehicles are not "passenger automobiles" even if they are light, such as ambulances, hearses, vehicles used to carry people or property for pay, and trucks or vans specially modified so that personal use is minimal (for example, with permanent shelving and the company name painted on).
Light vehicles: the yearly caps
| Year of use | Placed in service in 2026 | Placed in service in 2025 |
|---|---|---|
| First year, with bonus depreciation | $20,300 | $20,200 |
| First year, no bonus depreciation | $12,300 | $12,200 |
| Second year | $19,800 | $19,600 |
| Third year | $11,900 | $11,800 |
| Each later year | $7,160 | $7,060 |
The cap is multiplied by your business-use percentage. A vehicle used 80% for business has a 2026 first-year cap of $16,240 ($20,300 x 80%). Cost above the cap is not lost: it is deducted in later years, within each year's cap, until it is all recovered.
Heavy vehicles: much faster
- Bonus depreciation. For qualified property acquired after January 19, 2025, the 2025 tax law allows 100% bonus depreciation: the full business share of the cost in the first year. Used vehicles can qualify if they meet the acquisition rules. Property acquired before January 20, 2025 and placed in service in 2026 gets 20%.
- Section 179 expensing. For 2026 you can expense up to $2,560,000 of qualifying property, reduced once the property you place in service in 2026 passes $4,090,000. For SUVs rated between 6,000 and 14,000 pounds, the Section 179 deduction is capped at $32,000 for 2026. The cap does not apply to certain work vehicles, such as those that seat more than nine people behind the driver's seat or have an open cargo area at least six feet long. Bonus depreciation is not subject to that cap.
- Both need business use of more than 50%. Section 179 is also limited to your business income for the year.
- Neither is automatic. You can elect out of bonus depreciation for a class of property, and spreading deductions can be smarter if you expect higher income in later years.
The 50% test and recapture
- You must use the vehicle more than 50% for business to use accelerated depreciation, bonus depreciation or Section 179, and you must meet the test in each year of the six-year recovery period.
- At 50% or less in the first year: straight line over five years, no bonus depreciation, no Section 179.
- If business use drops to 50% or less in a later year, you must include excess depreciation in your income for that year: the depreciation (including any Section 179 and bonus) you claimed over what straight line would have allowed. It is reported on Form 4797, and your basis goes up by the same amount.
Selling the vehicle
If you sell a vehicle you depreciated, the gain is the sale price minus your remaining tax basis. Because depreciation lowered the basis, the part of the gain that comes from depreciation is taxed as ordinary income. Trade-ins are different from what many people expect, so ask us before you trade in a vehicle you have depreciated. See Pub. 544 for the reporting rules.
Electric vehicles and loan interest
- The federal new clean vehicle credit and the commercial clean vehicle credit are not available for vehicles acquired after September 30, 2025. A vehicle placed in service after that date qualifies only if you acquired it, with a binding written contract and a payment, on or before September 30, 2025.
- Car loan interest on a new, U.S.-assembled vehicle for personal use can be deducted up to $10,000 a year for 2025 through 2028, phasing out above $100,000 of income ($200,000 on a joint return). Lease payments do not qualify. If you are self-employed and use the vehicle in business, the business share of the interest is a business deduction instead, and you cannot deduct the same dollars twice.
Common questions
Is $20,300 what I can deduct in the first year?
Only for a car that counts as a passenger automobile (6,000 pounds or less), and the cap is multiplied by your business-use percentage. Heavier vehicles are not limited this way.
Can I deduct a whole SUV or truck in one year?
Sometimes. A vehicle rated over 6,000 pounds that you use more than 50% for business can qualify for 100% bonus depreciation if it meets the rules, and some work vehicles are also outside the $32,000 Section 179 cap. The result depends on weight, use, your income and whether it is new or used. A short call before you buy is worth it.
Do I have to take bonus depreciation?
No. You can elect out for a class of property, which spreads the deduction. For a passenger automobile, not taking bonus depreciation lowers the 2026 first-year cap from $20,300 to $12,300.
What happens if I stop using the vehicle for business?
If business use falls to 50% or less after you took accelerated depreciation, you switch to straight line and must include the excess depreciation in your income that year. See the 50% test below.
Where is this reported?
On Form 4562, including Part V for listed property such as vehicles. We prepare it with your return.
Official sources
- IRS Rev. Proc. 2026-15: 2026 depreciation caps and lease inclusion table
- IRS Rev. Proc. 2025-16: 2025 depreciation caps and lease inclusion table
- IRS Rev. Proc. 2025-32: 2026 inflation adjustments (Section 179)
- IRS Notice 2026-11: bonus depreciation guidance
- IRS Publication 463: Travel, gift, and car expenses
- IRS Publication 946: How to depreciate property
- IRS: Instructions for Form 4562
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