If your business is considering replacing or upgrading its vehicles, doing so before year end may help you take advantage of currently available tax benefits. In some cases, you may be able to deduct up to 100% of the purchase price for qualifying cars, trucks, SUVs and other vehicles used primarily or exclusively for business.

Cents-per-mile vs. actual expenses

There are two methods for claiming allowable business vehicle deductions: the cents-per-mile method and the actual-expense method. The cents-per-mile method allows you to deduct a standard mileage rate (72.5 cents for 2026) for business use of a vehicle. By bundling all vehicle expenses — including gas, maintenance, insurance and depreciation — into a single, flat rate, this method offers simplicity. 

But the actual-expense method may produce larger write-offs. In particular, businesses that track actual expenses may qualify for significant tax benefits through bonus depreciation and Section 179 expensing, or a combination of the two. 

Bonus depreciation and Sec. 179 expensing 

These tax incentives may allow you to write off some or all of the business-use cost of eligible assets, including qualifying vehicles, that otherwise would be capitalized and depreciated over several years. Both tax breaks may be available for new or used assets, so long as they’re new to you and otherwise qualify.

Section 168(k), also known as 100% first-year bonus depreciation, is now permanent for eligible assets, including certain business vehicles. Bonus depreciation is automatically applied to eligible assets unless you elect out of it. You can elect out of it only on an asset-class basis, though, not for individual assets. For example, you can elect out of bonus depreciation for all so-called five-year property (which includes automobiles and light, general-purpose trucks), but you can’t elect out of it for just one specific automobile. 

For 2026, the maximum Sec. 179 deduction is $2,560,000. This amount is reduced dollar‑for‑dollar when the cost of qualifying Sec. 179 property placed in service during the year exceeds $4,090,000.

There are some important differences between bonus depreciation and Sec. 179 expensing. There’s no cap on bonus depreciation deductions in a given year. Also, Sec. 179 deductions are limited to a business’s taxable income (with unused deductions carried forward to future years), while bonus depreciation may exceed taxable income and generate a net operating loss. Another significant difference: Sec. 179 treatment must be affirmatively elected by a business, while bonus depreciation automatically applies unless the business opts out.

Depreciation deductions generally apply in the following order:

• Sec. 179 expensing is applied first, up to applicable limits.
• Bonus depreciation is applied to the remaining basis. 
• If any basis remains (for example, if the business opts out of bonus depreciation), it’s depreciated under the Modified Accelerated Cost Recovery System.

Personal vs. business use

To maximize available deductions, the business use of a vehicle generally should exceed 50%. If a vehicle is used for both business and personal purposes, only the business-use portion of the cost is eligible for depreciation deductions, including any applicable bonus depreciation or Sec. 179 expensing. 

For example, if you purchase a vehicle for $30,000 and use it 60% of the time for business, the amount eligible for these deductions is generally limited to $18,000 (60% × $30,000), subject to other applicable rules and vehicle-specific limits.

Pay attention to vehicle weight

As you contemplate business vehicle purchases, keep in mind that a vehicle’s gross vehicle weight rating (GVWR) can significantly affect your first-year deduction:

• For passenger “luxury” vehicles with a GVWR of 6,000 pounds or less, the total first‑year depreciation limit for vehicles placed in service in 2026 is $12,300 if no bonus depreciation is claimed, or $20,300 if bonus depreciation is claimed.
• Certain vehicles, generally SUVs, with a GVWR of more than 6,000 pounds and not more than 14,000 pounds, are subject to a special Sec. 179 deduction limit of $32,000 in 2026. Any remaining business basis may qualify for bonus depreciation.
• Vehicles weighing more than 14,000 pounds generally aren’t subject to the luxury-auto limits or the special SUV limitation. In addition, certain vehicles designed or modified for nonpersonal use — such as qualifying delivery vans, shuttle vehicles, emergency vehicles and hearses — may be exempt from these restrictions.

Act now

If you’re looking to deduct business vehicle costs on your 2026 tax return, don’t delay. To qualify for these tax breaks, it’s not enough to purchase a vehicle this year; you’ll need to place it in service by year end.

A vehicle is placed in service when it’s “ready and available for a specifically assigned use” in your business, even if you aren’t using it yet. If you need guidance in maximizing your tax benefits, contact your tax advisor.

Sidebar:  What about employee-owned vehicles?

At one time, employees who used their personal vehicles for work could deduct business mileage (or, in some cases, actual expenses) as miscellaneous itemized deductions (subject to a 2%-of-adjusted-gross-income floor). However, miscellaneous itemized deductions have been permanently eliminated.



Although employees can no longer deduct business mileage or vehicle expenses, a similar result can be achieved if the business reimburses employees for these expenses under an “accountable plan.” The plan must require employees to substantiate business expenses and meet certain other requirements. Under these circumstances, reimbursements are excluded from the employee’s taxable income and are deductible by the employer.