2025 & 2026 Vehicle Tax Changes
2025 & 2026 Vehicle Tax Changes
During the 2025 tax year, significant changes were introduced with the One Big Beautiful Bill, which directly impacts vehicle-related tax rules. Understanding these changes is valuable for maximizing tax deductions for present and future years.
Below are some of the key vehicle-related tax changes.
Bonus Depreciation
Qualified new and old business vehicles that were placed in service after January 19th, 2025, could be eligible for 100% bonus depreciation. This will allow businesses to deduct the full cost of vehicles in the year it is placed in service for heavy vehicles over 6,000 lbs. (i.e., SUVs, pick-ups). If the vehicle is under 6,000 lbs., it has a first-year bonus limit of $20,200. If business use falls to 50% or less in a future year, you may have recapture of depreciation meaning a portion of the deduction is taxable income.
Section 179
The Section 179 deduction limit increased significantly, providing additional expense opportunities:
- Maximum deduction increased from $1,250,000 to $2,560,000
- Phase-out threshold increased from $3,130,000 to $4,000,000
Section 179 is limited to both new and old vehicles under 6,000 lbs.
While Section 179 also allows for immediate expensing, it has a specific cap of $31,300 for heavy SUVs (over 6,000 lbs.) in 2025. Bonus depreciation will maximize your tax deduction on high-value heavy vehicles (SUVs), because it has no dollar cap whereas Section 179 has the limit of $31,300.
Leasing Vehicles
Businesses may deduct the business-use portion of their lease payments as an ordinary business expense, whether the vehicle is new or old. However, leased vehicles are not eligible for depreciation, Section 179, or bonus depreciation.
Personal Loan Interest
Effective from 2025 to 2028, eligible individuals may deduct up to $10,000 of interest paid on qualified loans used to purchase a new or old qualified vehicle for personal use.
Qualified vehicles
To qualify for the personal vehicle loan interest deduction, the vehicle must:
- be a car, minivan, pickup truck, or motorcycle
- have a gross vehicle weight rating (GVWR) under 14,000 pounds.
- have final assembly in the United States.
Qualified Loans
A qualified loan must meet all of the following requirements:
- Loan must be acquired after December 31st, 2024
- Used to purchase a qualified vehicle
- Vehicle used only for personal use
- Have a secured lien on the vehicle.
Below is the IRS Guidance regarding the vehicle tax
https://www.irs.gov/newsroom/treasury-irs-provide-guidance-on-the-new-deduction-for-car-loan-interest-under-the-one-big-beautiful-bill
Business Mileage
If you are not accounting for the “actual vehicle expenses”, then you would use the standard business mileage rate of 72.5 cents per mile for 2026, up from 2025 self-employed and business mileage rate of 70 cents per mile.
If you would like to learn more about business vehicle write-offs and set up a consultation, call Marlies Y Hendricks CPA PLLC at either 716-694-3500 or 910-769-8730.
The above information is of a general nature only and should not be relied upon for specific situations.
