Save on taxes: Bonus depreciation for business vehicle purchase

As we are enjoying the fall and turning the corner to the colder winter months, you are likely thinking about your commercial vehicles and the wear and tear they sustained this year. You may have replaced vehicles already in 2025, and the good news is, you may be able to save some money on taxes based on what you replaced and when. There also may be replacements needed, in which case you could be thinking through costs and planning a best approach to swap out old vehicles. In this article we talk you through how to save money using bonus depreciation for vehicles you purchased in 2025 for your small or large business fleet. Bonus depreciation is a tax incentive allowing businesses to immediately deduct the cost of qualifying assets, instead of over time.

Tax deductions if you have a fleet of commercial vehicles

Are you a small or large business owner with commercial vehicles, or a fleet manager? Are you just getting your business started, or a seasoned business owner looking to grow your business? Calculating your commercial vehicle spend and how it will be impacted at tax time, including mileage and leasing, can make a huge difference in your overall expenses. Rather than taking the traditional vehicle depreciation over time, business owners and fleet managers can now take immediate deductions during tax season.

If your business purchases a vehicle(s) or truck(s) in 2024, tax codes allow you to get your total tax break up front instead of spreading the deduction out over the life of your vehicle or asset. Two tax codes — Section 179 deduction and bonus depreciation — make it possible to take advantage of the depreciation now. Section 179 is available every year, whereas bonus depreciation may change year-to-year based on any tax changes issued by the federal government.

What are the differences between Section 179 and bonus depreciation?

The One Big Beautiful Bill Act (OBBBA) permanently reinstated 100% bonus depreciation, as initially created by the Tax Cuts and Jobs Act (TCJA), for vehicles purchased and placed in service after January 19, 2025. 

A transitional election permits taxpayers to apply 40% or 60% bonus depreciation on vehicles purchased and placed in service after January 19, 2025.

For vehicles placed in service between January 1, 2025, and January 19, 2025, the bonus percentage is 40%. You report these purchases to the IRS on Form 4562.

Section 179 limits the annual deduction you can take. For 2025, the maximum Section 179 expense deduction is $2,500,000. There’s a calculation you have to make to determine what your deduction amount is. You have to determine by how much the cost of the vehicle exceeds $4,000,000. Then you take that amount and subtract it from the $2,500,000. Whereas, bonus depreciation has no annual limit on the amount of deduction you can take.

Section 179 deductions are also limited by how much your business made during the tax year.  A business can’t deduct more money than it made. Bonus depreciation does not have this limit and can be used to create a net loss.

Section 179 allows taxpayers to deduct a set dollar amount. With bonus depreciation taxpayers deduct a percentage (100%).

Section 179: main points and limitations

• There is a yearly deduction limit to Section 179. The maximum you can deduct each year is $2,500,000. 
• Businesses must show a profit or positive income at the end of the year.
• Vehicles must be purchased and serve your business before December 31st.
• For heavy SUVs, pick-ups and vans they must be over 6000 lbs. in gross vehicle weight (GVW) to qualify. To determine weight, the IRS looks at the Gross Vehicle Weight Rating, typically on the driver’s door jamb. 
• There is a deduction Cap for Heavy SUVs: $31,300 for 2025 if over 6,000 lbs.
• For vehicles over 14,000 pounds, you can deduct 100% of the purchase price rather than being subject to the limitations assigned to IRS section 179 vehicles.
• Vehicles or fleet trucks and vans must be used for more than 50% of your business activity.
• Used vehicles qualify, they just must be new to you.

For more information, please consult IRS Publication 946.

Bonus Depreciation: main points and limitations

Businesses can take advantage of big tax savings when bonus depreciation is taken into account. What bonus depreciation allows you to do is deduct the cost of your commercial vehicles from your taxable income. Here are some important points to consider:

• There is no maximum amount, and no limit on purchases. You can deduct your entire asset or vehicle fleet regardless of how much you paid for the vehicles.
• Bonus Depreciation is at 100% for 2025.
• Businesses do not have to show positive income.
• The vehicle(s) you include must be driven for at least 50% of the time for business purposes.
• The vehicle must be used within the United States.
• The vehicle cannot be used for hire, like a car rental service.
• The taxpayer claiming the deductions must be the owner of the vehicle.
• Delivery vehicles qualify.
• Specialty-use vehicles qualify.

Bonus depreciation is reported on IRS Form 4562.

Your business commercial vehicle fleet or work vehicles with limited personal use will qualify. Examples are delivery vehicles, including cargo vans, and box trucks without passenger seats, and specialty vehicles like an ambulance or a hearse. Vehicles can be new or used and can be financed by the dealership or bank.

Benefits of using bonus depreciation

Unlike Section 179, with bonus depreciation there is no cap. You can deduct the entire amount of your vehicle purchases without limitation. On top of that, with bonus depreciation there is no restriction based on your annual business income.

Fortunately, you do have the flexibility to use both Section 179 and bonus depreciation in the same year. For most businesses the IRS requires Section 179 first, followed by bonus depreciation. To decide which combination works best for your business, consult with a tax professional.

What are not considered business vehicles and therefore can’t be included in your vehicle tax deduction?

Overall, vehicles that are not considered business vehicles are those operated as equipment (i.e., tractors) or those operated for hire (i.e., taxis or transport vans).

Vehicle write-offs:

If the taxpayer doesn’t claim bonus depreciation, the greatest allowable depreciation deduction is:

• $12,200 for the first year,
• $19,600 for the second year,
• $11,800 for the third year, and
• $7,060 for each later taxable year in the recovery period.

If a taxpayer claims 100% bonus depreciation, the greatest allowable depreciation deduction is:

• $20,200 for the first year,
• $19,600 for the second year,
• $11,800 for the third year, and
• $7,060 for each later taxable year in the recovery period.

Fleet commercial vehicle expenses for tax deductions

Understanding the best way to expense the vehicles in your small or large business fleet can mean significant savings in taxes. In addition to vehicle depreciation, it is important to consider mileage deduction and buying vs. leasing when looking at overall tax savings for your business.

Keeping good records, including business mileage and other expenses, is essential for any business taking tax deductions. You can decide whether to use the standard mileage rate or actual costs to get the best advantage. As a general rule, the standard rate makes the most sense for economical vehicles whereas the actual cost is preferred if there are high operating expenses (repairs, tires, gas, etc.).

Mileage deductions on your fleet of commercial vehicles: standard rate vs. actual costs

For 2025, the standard mileage rate is 70 cents per mile for employees and self-employed. It is important to keep a record of the total number of miles driven over the year, and the total miles driven just for business purposes. Keeping a written log of mileage used for business daily or downloading a mileage app on your smartphone are easy ways to track your miles. Fleet cards can make it easy to keep track of mileage, too.

Some other vehicle deductions that qualify include turnpike tolls, parking fees, registration fees, and auto loan interest. These must be documented as legitimate expenses for your small business or fleet operations. If you decide to use the actual vehicle costs expense method, you can also deduct maintenance and repairs, insurance, licenses, lease payments, depreciation, and gas.

How to figure the actual cost deduction for your fleet of commercial vehicles

The actual cost deduction is based on the percentage of miles the vehicle is driven or used for business purposes and the amount you spend on upkeep. If you use your vehicle 60% of the time for business, for example (100,000 total miles and 60,000 for business purposes), you can deduct 60% of your total actual vehicle expenses. Again, fleet management fuel cards make it easy to keep track of business miles driven.

Deduction for depreciation or “wear and tear” on your fleet

Whether you are self-employed or an employee, you can also take a deduction for the wear and tear on vehicles. If the vehicle was purchased in 2025 and you used the actual costs deduction method, the maximum first year depreciation, including the bonus depreciation, is $18,200 multiplied by the percentage of total actual vehicle expenses (60% in the example above).

Most businesses will allow employees who use their personal vehicle for work purposes to submit a reimbursement request form that itemizes their expenses. This will require comprehensive record-keeping by your drivers. Refer to the IRS Business Use of Car section of their site for more details.

Will I need to pay taxes on the vehicle when I sell it?

When you sell the vehicle for which you claimed bonus depreciation, that depreciation is recaptured and taxed as ordinary income.

Special considerations for leasing a commercial vehicle for your fleet

If you lease a vehicle and use it solely for work purposes, the lease payment can be deducted from your taxable income when you calculate your taxes at year’s end. If you lease a vehicle and use it for both personal and business purposes, the business portion/payment of the lease payment can be deducted but the time spent in the vehicle for personal use cannot.

There is also an income inclusion rule to even out the tax benefits between leasing and owning. If the fair market value (FMV) of a leased vehicle is above a certain amount, the lessee may have to report additional income. This usually only affects those who have leased luxury vehicles and is designed to limit the tax benefits for expensive cars. The amount of your car expense that can be deducted will, of course, depend on how much your vehicle or truck is used for business. A fee or “inclusion amount” is a fixed dollar amount issued by the IRS that will reduce the amount you can deduct, in some cases. See IRS Publication 463, Travel, Gift, and Car Expenses.

The big picture: your total commercial vehicle fleet costs

If you’re a fleet manager or business owner with more than one vehicle or truck, your fleet management costs can make up a large portion of your operating budget. From licenses and permits to monthly payments and depreciation, the ongoing costs can have a huge impact on your overall bottom line. Other indirect costs like fuel, parts replacement, regular maintenance, parking fees, and tolls, can add up quickly.

The ability to capitalize on these direct and indirect vehicle and fleet expenses can mean large savings at tax time. In addition, by looking at the “big picture”  with a trusted tax consultant, you can figure out ways to increase your fleet efficiency during the year. From managing your fuel expenses with a fleet card to examining your yearly maintenance costs, you can begin to proactively plan for the upcoming year’s expenses.

Federal government tax incentives can also help you right-size your fleet to ensure the best use of every truck or vehicle you have on the road. Are they all working to your best advantage or are some under-utilized and only an added expense? Looking at the big picture of your fleet management cost every year will help you streamline your small business operations and expenses.

Closing out 2025 and making the most of your tax deductions

Whether you are a business manager or owner, self-employed and working on your own, or a fleet management company, the way you expense your work vehicle(s) or truck(s) can make a huge difference when filing your taxes. To use the Section 179 deduction and bonus depreciation to lower your tax bill, any vehicle purchases must be finalized before the end of the calendar year, and you must have used that vehicle during 2025.

It is important to remember that while Section 179 allows your business to deduct a specific dollar amount of new business assets (like vehicles or trucks), the bonus depreciation allows businesses to deduct a specific percentage: as of the 2025, 100% of the cost of a vehicle or truck. Both Section 179 and bonus depreciation are permanent and available every year. Taking advantage of these tax savings is a smart business move.

Making the most of your vehicle or fleet expenses, including mileage and leasing, can help your new business get off to a great start, or help a seasoned business grow and thrive. Rather than taking the traditional vehicle depreciation over time, business owners can now take an immediate deduction.

Whether you need to increase the number of vehicles in your fleet or buy a new or pre-owned commercial truck for yourself, the advantages of making these purchases before the end of the year can be beneficial at tax filing time.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your tax, legal and accounting advisors before engaging in any transaction.

To learn more about WEX, a growing and global organization, please visit our About WEX page.

All fleet cards are not the same, and different types of fuel cards suit the needs of different kinds and sizes of businesses. View WEX’s fleet card comparison chart to see which fleet fuel card is right for you. 

Apply for a fleet card today!

Resources:
IRS
U.S. Bank
Thomson Reuters
Jackson Hewitt
Millan + Co.
Drivers Note

Editorial note: This article was originally published on December 11, 2020, and has been updated for this publication.