The IRS sets annual depreciation caps for passenger vehicles used for business. For a car placed in service in 2025 without bonus depreciation, the deductible limits are: $12,200 for Year 1, $19,600 for Year 2, $11,800 for Year 3, and $7,060 for each subsequent year until the cost basis is fully recovered. These figures, published annually by the IRS in Revenue Procedure 2024-25, dictate the maximum you can write off, regardless of the vehicle's actual calculated depreciation.
These limits apply specifically to passenger automobiles defined as four-wheeled vehicles with an unloaded gross vehicle weight rating of 6,000 pounds or less. The rules are designed for standard depreciation methods like the Modified Accelerated Cost Recovery System (MACRS). If you use the vehicle 100% for qualified business, you can apply the full limit. For mixed use, you must allocate the limit based on your business-use percentage.
The importance of these caps cannot be overstated. For example, if you purchase a $60,000 sedan for business in 2025, your Year 1 deduction is capped at $12,200, not the higher amount a standard MACRS calculation might produce. This significantly extends the recovery period of the vehicle's cost.
| Tax Year | Maximum Depreciation Deduction (2025 Placed-in-Service) |
|---|
| Year 1 | $12,200 |
| Year 2 | $19,600 |
| Year 3 | $11,800 |
| Each Succeeding Year | $7,060 |
Choosing the Section 179 expense deduction or bonus depreciation (Code Section 168(k)) alters this path. For 2025, the first-year bonus depreciation is 60%. Electing bonus depreciation allows you to bypass the first-year cap of $12,200, but the standard caps immediately apply in subsequent years. The Section 179 deduction, with its own annual limits and vehicle weight classifications, is another option but comes with business income limitations.
Proper documentation of business use—through a contemporaneous mileage log—is the foundation for claiming any depreciation. Without it, the deduction is vulnerable in an audit. These rules are updated annually for inflation, so consulting the latest IRS guidance or a tax professional for vehicles placed in service after 2025 is essential.
