Vehicle bonus depreciation restored to 100 percent

Complete vehicle expensing returns under landmark legislation

The One Big Beautiful Bill Act delivers transformative relief for businesses investing in vehicles by restoring 100% bonus depreciation through December 31, 2030. This restoration eliminates the scheduled phase-down that would have reduced first-year deductions to just 40% in 2026, allowing businesses to immediately write off the full cost of qualifying Vehicle expenses purchases in the year they are placed in service.

Section 70301 of the legislation fundamentally changes the depreciation landscape for business vehicles. Before this act, businesses faced a declining bonus depreciation schedule, dropping from 80% in 2023 to 60% in 2024, with further reductions planned through 2027. The new law eliminates this phase-out, providing certainty for businesses planning vehicle acquisitions through the end of the decade, allowing them to use Depreciation and amortization strategies.

How the One Big Beautiful Bill Act restores complete vehicle expensing

The restoration of 100% bonus depreciation under Section 70301 includes several critical provisions that businesses must understand to maximize their tax benefits.

Key provisions of the restored bonus depreciation include the following elements:

1. General assets must be acquired and placed in service by January 1, 2030, to qualify for 100% bonus depreciation
2. Long-production assets such as aircraft and heavy machinery must be acquired by 2030 and placed in service by January 1, 2031
3. Binding contracts signed before January 20, 2025, are treated as pre-2025 purchases under transitional rules
4. A special transitional election allows businesses to use reduced percentages of 40% or 60% for the first taxable year ending after January 19, 2025

The legislation makes 100% bonus depreciation effectively permanent for all qualifying property acquired and placed in service after January 19, 2025.

Calculating tax savings for business vehicle purchases

Understanding the financial impact of restored bonus depreciation requires examining specific scenarios that demonstrate the substantial savings available to businesses in 2026 and beyond. The calculations below illustrate the immediate tax benefits of different vehicle purchases.

Heavy SUV example calculation:

• Vehicle purchase price of $85,000 with a gross vehicle weight rating over 6,000 pounds
• Business uses a percentage of 100%
• Full $85,000 eligible for bonus depreciation with no luxury auto limits
• Tax savings at a 37% marginal rate equals $31,450 in year one

Standard sedan example calculation:

• Vehicle purchase price of $55,000 with a gross vehicle weight rating under 6,000 pounds
• Business use percentage of 90%
• First-year depreciation limited by luxury auto caps of $20,400 for 2025
• Adjusted first-year deduction of $18,360 based on business use
• Tax savings at a 37% marginal rate equals $6,793

Fleet purchase example:

• Total fleet vehicle purchases of $400,000 for qualifying heavy vehicles
• Combined with the Section 179 election for optimal deduction sequencing
• Full $400,000 deductible in year one under 100% bonus depreciation
• Tax savings at a 35% effective rate equals $140,000 in immediate cash flow benefits

Understanding vehicle weight classifications and depreciation limits

The Internal Revenue Code establishes different depreciation treatment based on vehicle gross vehicle weight rating, creating significant planning opportunities for businesses selecting vehicles for 2026 purchases. Understanding these classifications ensures businesses maximize their available deductions.

Vehicles under 6,000 pounds GVWR face luxury automobile limitations:

• First-year depreciation cap of $20,400 for 2025, adjusted annually for inflation
• Second-year depreciation cap of $19,800
• Third-year depreciation cap of $11,900
• Each subsequent year depreciation cap of $7,160

These limitations apply regardless of the vehicle's actual cost, meaning a $60,000 luxury sedan depreciates the same amount in the first year as a $40,000 sedan, even if both weigh under 6,000 pounds.

Vehicles over 6,000 pounds GVWR enjoy full bonus depreciation benefits:

• No luxury automobile limitations apply
• Full purchase price eligible for 100% first-year bonus depreciation
• Section 179 deduction available up to $30,500 for qualifying SUVs
• Examples include Ford F-250, Cadillac Escalade, and Ford Transit commercial vans

The weight threshold creates strategic opportunities for businesses selecting vehicles. S Corporations and Partnerships can pass through substantial first-year deductions to owners when purchasing heavy vehicles that exceed the 6,000-pound threshold.

Strategic coordination with Section 179 deductions

The One Big Beautiful Bill Act enhances Section 179 expensing limits under Section 70306, creating powerful coordination opportunities with restored bonus depreciation. Businesses can strategically layer these provisions to maximize first-year deductions on vehicle purchases.

The enhanced Section 179 provisions include the following improvements:

• Maximum annual deduction increases to $2.5 million, up from $1 million
• Phase-out threshold rises to $4 million in total qualifying purchases, up from $2.5 million
• Annual inflation adjustments begin in 2025 based on 2024 inflation data
• Retroactive application to all qualifying purchases made after December 31, 2024

Optimal deduction sequencing strategy:

Apply Section 179 first to qualifying vehicles up to the annual limit, then use bonus depreciation for the remaining qualifying property. This approach ensures businesses capture maximum immediate deductions while preserving bonus depreciation capacity for other assets.

Combined deduction example for fleet modernization:

A transportation company purchasing five delivery vans at $65,000 each totals $325,000 in vehicle investments. The company can apply Section 179 to the full amount and claim a combined deduction of $325,000 in year one. At a 35% effective tax rate, this generates $113,750 in immediate tax savings while accelerating fleet modernization.

Qualifying vehicle types and acquisition requirements

The restored 100% bonus depreciation applies to a broad range of business vehicles, provided they meet specific acquisition and use requirements under the Internal Revenue Code. Understanding which vehicles qualify ensures businesses capture available tax benefits.

Qualifying vehicles include:

• Pickup trucks, SUVs, and vans are used primarily for business purposes
• Delivery vehicles and commercial fleet assets
• Service vehicles for contractors and technicians
• Passenger vehicles used in trade or business activities

Critical acquisition requirements:

The vehicle must be acquired after September 27, 2017, and placed in service before January 1, 2030. For the 100% rate under the One Big Beautiful Bill Act, acquisitions must occur after January 19, 2025. Used vehicles qualify for bonus depreciation if they are new to the taxpayer and were not previously used in their business operations.

C Corporations claim vehicle depreciation directly on their corporate returns, while pass-through entities like S Corporations and Partnerships allocate depreciation deductions to their owners based on ownership percentages and operating agreements.

Businesses use percentage calculations and documentation

Claiming bonus depreciation requires that vehicles meet minimum business use requirements and that taxpayers maintain contemporaneous documentation supporting their claimed deductions.

Business use percentage calculation example:

• Total annual miles driven of 24,000
• Business miles documented through mileage logs totaling 18,000
• Business use percentage equals 75%
• Only 75% of depreciation deductions are allowable based on business use

Required documentation elements:

Businesses must maintain detailed records showing the date of each trip, the starting and ending odometer readings, the destination, and the business purpose. GPS-based mileage tracking applications provide the most reliable documentation. Personal commuting miles never qualify as business use, regardless of whether the trip includes business errands along the route.

Heavy vehicle strategies for maximum tax benefits

Vehicles with a gross vehicle weight rating exceeding 6,000 pounds provide the most significant tax benefits under the restored bonus depreciation rules.

Popular qualifying heavy vehicles include:

• Full-size pickup trucks such as the Ford F-150 and the Chevrolet Silverado, in specific configurations
• Large SUVs, including the Cadillac Escalade and Lincoln Navigator
• Commercial vans such as the Ford Transit and the Mercedes Sprinter

Tax strategy for professional service firms:

Medical practices, law firms, and consulting firms can leverage the purchase of heavy SUVs to generate substantial first-year deductions. A partner in a Partnership purchasing an $80,000 heavy SUV with 100% business use can deduct the entire purchase price, generating $29,600 in tax savings at the 37% marginal rate. Coordination with Late S Corporation Elections or Late C Corporation Elections can further enhance overall tax savings.

Entity structure considerations for vehicle depreciation

Different business entity structures affect how vehicle depreciation flows through to owners and, in turn, overall tax liability.

Pass-through entity benefits:

S Corporations and Partnerships pass through vehicle depreciation deductions to owners, who can claim them against their individual taxable income. High-income business owners in the 37% tax bracket realize the maximum benefit from accelerated depreciation.

C Corporation strategies:

C Corporations deduct vehicle depreciation at the 21% corporate rate, reducing current-year corporate tax liability. While the corporate rate is lower than individual rates for high earners, C Corporations can accumulate cash for future investments.

Mixed-use considerations:

Vehicles used for both business and personal purposes require depreciation allocation based on the business use percentage. Maintaining separate vehicles simplifies documentation and ensures full depreciation capture.

Integration with other business deductions

Restored bonus depreciation coordinates with numerous other business deductions available under the One Big Beautiful Bill Act, creating comprehensive tax reduction strategies for businesses investing in vehicles and related expenses.

Travel expenses incurred while using business vehicles remain fully deductible, including fuel, tolls, parking, and related costs for trips beyond everyday commuting. These deductions complement vehicle depreciation to capture the full cost of business transportation.

Meals deductions during business travel in company vehicles qualify for the 50% standard deduction rate. The One Big Beautiful Bill Act includes exceptions to limitations on business meal deductions under Section 70308, providing additional opportunities for deductions incurred during vehicle-based business activities.

Employee achievement awards can complement fleet vehicle programs by recognizing employees for safety records or performance metrics related to vehicle operations. These awards qualify for tax-advantaged treatment while supporting fleet management objectives.

Timing strategies for maximum depreciation benefits

Strategic timing of vehicle purchases and placed-in-service dates optimizes available depreciation deductions across multiple tax years.

Year-end purchase considerations:

Vehicles placed in service by December 31 qualify for bonus depreciation in the current tax year, regardless of when the purchase occurred. A vehicle purchased in November and placed in service in December generates full first-year depreciation, while the exact vehicle placed in service in January would delay the deduction by one year.

Multi-year fleet planning:

Businesses with ongoing vehicle needs can strategically time purchases to maximize deductions in high-income years. The certainty of 100% bonus depreciation through 2030 enables long-term fleet planning without concern about changing depreciation rates. Home office deductions for business owners who operate from home can coordinate with vehicle depreciation, as business mileage begins from the home office location.

Documentation and compliance requirements

Maintaining proper documentation ensures businesses capture available vehicle depreciation deductions while protecting against IRS challenge during examination.

Essential documentation requirements include:

• Purchase agreements and invoices showing acquisition dates and costs
• Vehicle registration documenting ownership and the placed-in-service date
• Manufacturer specifications confirming gross vehicle weight rating
• Contemporaneous mileage logs with dates, destinations, and business purpose
• Business purpose records explaining why each trip was necessary

Form 4562 reporting:

Businesses report vehicle depreciation on Form 4562, Depreciation and Amortization. Section 179 elections must be made on the original tax return filed by the due date, including extensions.

Plan your vehicle acquisitions for maximum tax savings

The restoration of 100% bonus depreciation under the One Big Beautiful Bill Act creates unprecedented opportunities for businesses to reduce their tax liability through strategic vehicle purchases. With full expensing available through December 31, 2030, businesses have a significant window to modernize their fleets while capturing immediate tax benefits.

Instead's comprehensive tax platform makes it simple to track qualifying vehicle purchases, calculate available depreciation deductions, and ensure full compliance with IRS documentation requirements.

Explore Instead's pricing plans to access comprehensive vehicle depreciation tracking and maximize your tax savings under the One Big Beautiful Bill Act.

Frequently asked questions

Q: How much can my business save annually with restored 100% bonus depreciation on vehicles?

A: Your savings depend on the vehicle purchase price, gross vehicle weight rating, and your tax rate. Businesses purchasing heavy vehicles over 6,000 pounds GVWR can save between $18,000 and $31,450 on an $85,000 vehicle purchase, depending on their tax bracket. Standard passenger vehicles under the weight threshold face luxury auto caps that limit first-year savings to approximately $6,800 to $7,550.

Q: Can I use bonus depreciation if I finance my vehicle purchase?

A: Yes, financing arrangements don't disqualify vehicles from bonus depreciation treatment. You can claim the full deduction in the year the vehicle is placed in service, even if you're making payments over multiple years. The deduction is based on the full purchase price, not the amount of your cash payment.

Q: What happens if my vehicle weighs exactly 6,000 pounds?

A: The 6,000-pound threshold is exclusive, meaning vehicles must exceed 6,000 pounds to avoid luxury auto limitations. A vehicle weighing exactly 6,000 pounds faces the same first-year depreciation caps as lighter vehicles. Review manufacturer specifications carefully to confirm the gross vehicle weight rating exceeds the threshold.

Q: Can I coordinate Section 179 with bonus depreciation for maximum benefits?

A: Yes, the One Big Beautiful Bill Act allows you to use Section 179 first (up to the enhanced $2.5 million limit), then apply 100% bonus depreciation to the remaining qualifying property. This coordination can result in immediate deductions that are substantially larger than either provision alone.

Q: Do the restored bonus depreciation rules apply to used vehicles?

A: Yes, used vehicles can qualify for bonus depreciation provided they are new to your business and were not previously used in your business operations. The vehicle doesn't need to be brand-new; it just needs to be new to your business.

Q: How do I document business use percentage for my vehicle?

A: Maintain contemporaneous mileage logs showing the date of each trip, starting and ending odometer readings, destination, and business purpose. GPS-based mileage tracking applications provide the most reliable documentation. Calculate business use percentage by dividing business miles by total miles driven annually.

Q: Can I make Section 179 elections after my tax return is filed?

A: Section 179 elections must generally be made by your tax return due date, including extensions. Late elections are typically not permitted, so it's essential to work with your tax professional to ensure timely elections are made on Form 4562.