If you used one or more vehicles for business purposes in 2025, you may qualify for important tax deductions on your 2025 income tax return. Businesses are typically allowed to deduct expenses related to the business use of a vehicle, along with depreciation. However, the rules can be complex, and the amount you can deduct may depend on several factors, including the vehicle’s weight, how much it is used for business versus personal purposes, and whether you choose the actual expense method or the standard mileage rate.
Actual expenses plus depreciation
In the year you place a vehicle into service, you can choose between deducting the actual expenses related to business use or, if the vehicle is a car, SUV, van, pickup, or panel truck, using the standard mileage (cents-per-mile) deduction. Deductible vehicle expenses may include fuel, oil, tires, insurance, repairs, licenses, and registration fees. To claim these deductions, you must keep accurate records to support the expenses.
If you use the actual expense method, you can also claim a depreciation deduction for the vehicle. This requires calculating depreciation separately each year until the vehicle is fully depreciated. Under the general depreciation rule, the allowable percentages of the purchase price are:
- Year 1: 20%
- Year 2: 32%
- Year 3: 19.2%
- Year 4: 11.52%
- Year 5: 11.52%
- Year 6: 5.76%
However, if the vehicle is used 50% or less for business, you must instead use the straight-line depreciation method, which allows 10% in Years 1 and 6 and 20% in Years 2 through 5.
For passenger vehicles, depreciation deductions may also be limited by “luxury auto” depreciation caps, which are adjusted annually for inflation. For vehicles placed in service in 2025, the general limits are:
- Year 1: $20,200 ($12,200 if first-year bonus depreciation is not claimed)
- Year 2: $19,600
- Year 3: $11,800
- Each additional year until fully depreciated: $7,060
These limits must be reduced proportionally if the vehicle is used partly for personal purposes.
More favorable depreciation rules apply to heavier vehicles, such as certain SUVs, pickups, and vans. Vehicles with a gross vehicle weight rating (GVWR) above 14,000 pounds may qualify for 100% bonus depreciation or the standard Section 179 expensing limit (up to $2.5 million for 2025). Vehicles with a GVWR between 6,000 and 14,000 pounds—often SUVs—are subject to a reduced Section 179 deduction limit of $31,300. These tax benefits are only available if the vehicle is used more than 50% for business purposes.
The cents-per-mile method
For 2025, the standard business mileage rate for cars, SUVs, vans, pickups, and panel trucks is 70 cents per mile. This rate will increase to 72.5 cents per mile in 2026. It applies to gasoline, diesel, electric, and hybrid vehicles. Because the rate already includes a built-in depreciation component, you cannot claim both the mileage deduction and separate depreciation deductions for the same vehicle.
The mileage rate is updated each year and is based on a study commissioned by the Internal Revenue Service that analyzes the average fixed and variable costs of operating a vehicle, including fuel, maintenance, repairs, and depreciation. In some cases, if fuel prices change significantly, the IRS may adjust the mileage rate during the year.
Using the standard mileage rate can be advantageous for business owners who prefer simpler recordkeeping, since it eliminates the need to track and calculate actual vehicle expenses or depreciation. However, you must still keep basic records, including the mileage for each business trip, the date of travel, and the destination.
There are several factors to evaluate when deciding whether to use the actual expense method or the standard mileage (cents-per-mile) method for a vehicle your business placed in service in 2025. If the vehicle was placed in service in an earlier year and you previously claimed deductions using the actual expense method, you cannot switch to the standard mileage rate for 2025 or any future year. However, if you initially used the standard mileage rate, you are allowed to switch to the actual expense method in a later year. In that case, you may only use the straight-line depreciation method for the vehicle.
Have questions? Contact us to learn more.
