Car Depreciation Tax Deductions

If you own your business vehicle, you can deduct the cost / value of your car over a 5 year period through depreciation. There are a few different ways you can depreciate your vehicle, the main difference is how you spread the deprecation expense out over a five year period. While depreciation may seem like a confusing or obscure deduction, it could end up being your largest.


Speedy Wheeler purchased a new car so he could take his kids to school and drive for Sidecar on weekends. Since Speedy doesn't use his vehicle for Sidecar more than 50% of the time, he would only be eligible to deduct the cost of his new car using the straight line depreciation method.


Gina Gogetter had a phenomenal year and cleared over $1 million in commissions. She used her new car for business purposes 75% of the time. Gina could benefit from calculating her depreciation deduction using the MACRS 200% declining balance method, since conceivably she is going to owe more taxes this year than next and the MACRS 200% declining balance method would allow her to deduct more depreciation into the current year. She should also look into the section 179 deduction.


Homer House is a landlord and uses his vehicle for business purposes 15% of the time, driving to his rental properties to meet with his tenants and make repairs. Since Homer's driving activities are limited, he takes the standard mileage deduction. When Homer prepares his tax return at the end of the year it is important he remember that he is not eligible to take any depreciation deduction on his vehicle, since depreciation is already included as part of his $0.545 per mile deduction.


Jill is a delivery driver for Postmates who leases her vehicle. She determined that she will come out ahead deducting her actual vehicle expenses related to business activity, as opposed to using the standard mileage rate. Jill needs to remember that even though she is using the actual method, she cannot take a depreciation deduction on her vehicle because she does not own it.


Adam is a photographer who started his business in July last year. He purchased a vehicle he regularly uses to drive to photo shoots. Adam decided to deduct his actual vehicle expenses because he figured he would be able to include a portion of his $450 per month car payment as part of his deduction. Luckily for Adam, his accountant caught this mistake while reviewing Adam's supporting tax documentation and informed him that this was not allowed. The good news is that instead of deducting his car payment he can deduct depreciation for the portion of the vehicle related to his business activity.


  • Modified Accelerated Cost Recovery System (MACRS) 200% Declining Balance: This method is a hybrid of multiple depreciation methods. Typically it is the method the IRS has you default to using, however, you can select an alternate depreciation method if you so choose. This method will provide the greatest deduction in the first years you are using your vehicle.
  • Straight Line: Equal expensing each year, so if you spent $30,000 on your car on January 1st, divided evenly over 5 years, you would get a $6,000 deduction per year. Note that this method is required if you use your vehicle for business purposes less than 50% of the time.
  • MACRS 150% Declining Balance: You record more depreciation at the beginning of the five year period using the MACRS 150% declining balance method than you do using straight line, but less than you would using MACRS 200% method.
  • You are not eligible to depreciate a vehicle you lease. Also, you cannot take a depreciation deduction and deduct your car payments at the same time. If you are deducting your miles using the standard mileage rate depreciation is included in the standard rate.
  • Depreciation is closely related to the Section 179 Deduction. Refer to our 179 summary to understand how these two deductions can save you money. Also, did you know you can depreciate all types of property and not only your vehicle? Refer to our Office Furniture and Equipment page for more information.

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