Bonus Depreciation Is Shrinking. Here Is What That Means for Business Vehicle Buyers.
If you bought a business vehicle between 2018 and 2022, you may have benefited from 100% bonus depreciation, which allowed you to deduct the entire cost of a qualifying vehicle in the year you placed it in service. That era is over.
Under the Tax Cuts and Jobs Act (TCJA) of 2017, bonus depreciation began phasing down by 20 percentage points per year starting in 2023. Here is the schedule:
- 2022 and earlier: 100%
- 2023: 80%
- 2024: 60%
- 2025: 60% (extended or as originally scheduled)
- 2026: 40%
- 2027: 20%
- 2028+: 0% (unless Congress extends it)
For business owners planning a vehicle purchase, this phase-down changes the math on when and how to buy.
How Bonus Depreciation Works with Vehicles
Bonus depreciation allows you to deduct a percentage of the vehicle's depreciable cost in the first year, on top of any Section 179 deduction you claim. The two deductions work together.
Here is the order of operations:
- Apply Section 179 deduction (up to $30,500 for vehicles over 6,000 lbs)
- Calculate bonus depreciation on the remaining depreciable basis
- Apply regular MACRS depreciation on any remaining balance
Example: $70,000 SUV Over 6,000 lbs, 100% Business Use
- Section 179 deduction: $30,500
- Remaining basis: $39,500
- Bonus depreciation at 40% (2026): $15,800
- Regular first-year MACRS (20% of remaining $23,700): $4,740
- Total first-year deduction: $51,040
Compare that to what the same vehicle would have yielded in 2022 with 100% bonus depreciation:
- Section 179: $27,000 (2022 limit)
- Bonus depreciation at 100%: $43,000
- Total first-year deduction: $70,000 (the entire cost)
The difference is meaningful: $51,040 vs. $70,000 in first-year deductions. You still get the remaining $18,960 in depreciation over years 2-5, but the front-loaded tax benefit is smaller.
What This Means for Passenger Cars (Under 6,000 lbs)
Passenger vehicles under 6,000 lbs are subject to annual depreciation caps regardless of Section 179 or bonus depreciation. The first-year cap (including bonus depreciation) is approximately $20,400 for 2026. This cap limits the impact of bonus depreciation for lighter vehicles.
For passenger cars, the phase-down of bonus depreciation has less practical impact because the depreciation caps are already the binding constraint. Whether bonus depreciation is 40% or 100%, your first-year deduction on a passenger car is capped at roughly $20,400.
This is another reason why vehicles over 6,000 lbs are significantly more tax-efficient for business purchases.
Should You Buy Now or Wait?
The declining bonus depreciation creates a buy sooner incentive for business owners who need a vehicle. Every year you wait, the first-year deduction shrinks.
However, this should not be the sole reason to buy. Consider:
- Do you actually need a new vehicle for your business?
- Is your income high enough this year that a large deduction is valuable?
- Can you get a good deal on the vehicle, or are prices inflated?
- Would leasing provide better cash flow management even with a smaller tax benefit?
If you genuinely need a vehicle and have taxable income to offset, 2026 at 40% bonus depreciation is better than 2027 at 20%. But a well-timed purchase in a year with strong incentives and below-invoice pricing is worth more than a rushed purchase for the tax benefit alone.
The Lease Alternative
If the declining bonus depreciation makes buying less attractive, remember that leasing your business vehicle provides a different but consistent tax benefit. Lease payments are fully deductible (proportional to business use) every year, with no phase-down or expiration.
For business owners who prefer steady, predictable deductions over a large first-year write-off, leasing becomes relatively more attractive as bonus depreciation phases down.
Will Congress Extend Bonus Depreciation?
There is ongoing discussion in Congress about extending or restoring 100% bonus depreciation. Several proposals have been introduced, but as of early 2026, no extension has been signed into law. Business owners should plan based on current law (40% in 2026, 20% in 2027) and treat any extension as a potential bonus, not a certainty.
What Vantage Does Differently
We help business owners time their vehicle purchases to maximize both the deal and the tax benefit. We track incentive programs, negotiate below-invoice pricing, and ensure delivery before your tax-year deadline. Whether you are buying for Section 179 and bonus depreciation or leasing for monthly deductions, we find the best price on the right vehicle.
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