Part 5: 2025 Vehicle Depreciation Explained — Section 179, Bonus Depreciation & MACRS Made Simple

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🚗 2025 Vehicle Depreciation Explained — Section 179, Bonus Depreciation & MACRS Made Simple

Choosing the right depreciation method can dramatically change your tax outcome.
In 2025, Bonus Depreciation continues to phase down, Section 179 limits rise again, and luxury auto limits continue to restrict deductions for passenger vehicles.



📚 Table of Contents

  1. 1️⃣ What Changed in 2025 — The Big Picture
  2. 2️⃣ Section 179 — Immediate Expensing for Qualifying Vehicles
  3. 3️⃣ Bonus Depreciation — 2025 Rates, Requirements & Strategy
  4. 4️⃣ MACRS Depreciation & Luxury Auto Limits
  5. 5️⃣ Real-World Calculation Examples
  6. 6️⃣ FAQ — Most Common EA-Level Questions

1️⃣ What Changed in 2025 — The Big Picture

For 2025, vehicle depreciation is shaped by two key updates:

  • Bonus Depreciation drops to 40% (after 60% in 2024 and 80% in 2023)
  • Section 179 limits increase due to inflation (approximately $1.22M for 2025)
EA Tax Tip

Section 179 is elective and limited by taxable income — meaning you use it strategically in “high-profit years.”
Bonus Depreciation is not limited by income and can help in lower-profit years.

2️⃣ Section 179 — Immediate Expensing for Qualifying Vehicles

Section 179 allows businesses to deduct the cost of qualifying equipment — including certain vehicles — in the year they’re placed in service. It’s powerful but has strict rules.

✔️ Vehicles Eligible for Section 179

  • SUVs over 6,000 lbs GVWR
  • Pickup trucks with a separate cargo bed
  • Certain vans used primarily for business

✔️ Not Eligible or Limited

  • Passenger cars (subject to luxury auto limits)
  • Vehicles used less than 50% for business
  • Leased vehicles
Example — Section 179 on a Heavy SUV (Business-Use 80%)

Vehicle price: $64,500
Section 179: 64,500 × 80% = $51,600 deduction
Bonus Depreciation: Not needed if fully expensed

EA Tax Tip

Section 179 cannot exceed taxable business income.
If you elect the full amount in a low-income year, excess cannot carry forward. Plan ahead based on your projected profit.

3️⃣ Bonus Depreciation — 2025 Rates, Rules & Strategy

Bonus Depreciation applies after Section 179 and allows accelerated write-off for qualifying new or used property.

Bonus Depreciation Rate for 2025: 40%

✔️ Requirements

  • Business use of 50% or more
  • Placed in service in 2025
  • Works for new or used vehicles
Example — Passenger Car (Business-Use 65%)

Price: $41,000
Bonus (40%): $16,400
Business portion: 16,400 × 65% = $10,660
Remaining basis depreciated under MACRS

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4️⃣ MACRS Depreciation & Luxury Auto Limits

For passenger vehicles, MACRS applies — with strict annual caps known as the Luxury Auto Limits.

✔️ Approximate 2025 Luxury Auto Limits

  • Year 1: about $20,400
  • Year 2: about $19,700
  • Year 3: about $11,800
  • Year 4+: about $7,100 per year
EA Practical Tip

Even if you qualify for Section 179 and Bonus Depreciation, passenger vehicles cannot exceed the Luxury Auto Limits.
Heavy vehicles (>6,000 lbs) are the only way around these caps.

5️⃣ Real-World Calculation Examples

Scenario A — Heavy SUV / High-Income Year / Business-Use 85%

Vehicle price: $71,000
Section 179: 71,000 × 85% = $60,350
Bonus: Optional, often unnecessary

👉 Best for high-profit years: Section 179 delivers the largest deduction.

Scenario B — Passenger Car / Lower-Income Year / Business-Use 60%

Price: $38,000
Section 179: Limited by taxable income → not ideal
Bonus: 38,000 × 40% × 60% = $9,120
Remaining basis limited by luxury auto caps

👉 In low-income years, Bonus + MACRS is usually more efficient.

6️⃣ FAQ — Most Common EA-Level Questions

Q1. Can I use Section 179 and Bonus together?
→ Yes. Section 179 is applied first, then Bonus Depreciation applies to the remaining basis.

Q2. Are leased vehicles depreciated?
→ No. Lease payments are deducted as operating expenses instead.

Q3. What if business-use falls below 50% in later years?
→ You may face recapture rules. Keep annual business-use percentage consistent and well documented.

🔗 EA Tax Guide Internal Links

Reference Links

Important: Federal Tax Law Notice

This guide reflects U.S. federal tax law.
State rules for personal property tax, EV benefits, and depreciation limits may differ. Always review state-specific guidance before filing.

🚗 Car · Travel · Home Office Deduction Mastery (2025) — Series Index

  1. Part 1 — 2025 Car Expense Deduction Guide
  2. Part 2 — Business-Use % for Mixed-Use Vehicles
  3. Part 3 — Actual-Method Deductible Car Expenses
  4. Part 4 — Mileage Log Requirements
  5. Part 5 — Depreciation, Section 179 & Bonus Depreciation
  6. Part 6 — Business Travel Rules
  7. Part 7 — Mixed Family + Business Trips
  8. Part 8 — 50% Meals Deduction
  9. Part 9 — Home Office Deduction
  10. Part 10 — Form 8829 Example

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