2025 Year-End Vehicle Tax Deductions You Can Still Claim After OBBBA

It’s time to examine your existing business and personal cars, SUVs, trucks, and vans for valuable year-end tax deductions that can put real money back in your pocket.

In this article, we’ll first focus on your prior and existing business vehicles owned by you or your pass-through entity. Then we’ll explore how your personal vehicles may offer major year-end deductions thanks to the One Big Beautiful Bill Act (OBBBA).

Let’s begin with your current and former business vehicles.

Your first step is to determine your gain or loss on sale. Once you know your gain or loss, apply these general rules:

• Gains from depreciation recapture are taxed as ordinary income.
• Gains above original basis are capital gains. This is rare for business vehicles but possible if you own classic or antique vehicles that have appreciated.
• Losses on business vehicles produce ordinary deductions.

You report gains and losses on IRS Form 4797, meaning they are separate from your business income and expenses. As a result, these gains and losses do not affect your self-employment tax.

Now let’s look at how year-end tax planning can help you capture large deductions from your existing vehicle situation.

Below are five powerful existing-vehicle tax strategies you may be able to use. As with all year-end strategies, timing is everything. If you want the deduction in 2025, the action must be completed by December 31.

1. Take Back Your Old Business Vehicle from Your Child or Spouse and Sell It

It may sound harsh, but stay with this idea.

What happened to your old business vehicle? Do you still have it? Is your teenager driving it? Does your spouse use it as a personal vehicle?

That old business vehicle could have a large tax-deductible loss embedded in it. If so, the strategy is simple: reclaim the vehicle and sell it to a third party before December 31. This generates a deductible loss for 2025.

Your deduction depends on the percentage of business use, which generally drops the longer the vehicle is used personally—another reason to act sooner rather than later.

Planning tip: Consider buying a replacement personal vehicle for your spouse or child before taking this one away for tax purposes.

If the vehicle would produce a taxable gain instead of a loss, do nothing. Allowing personal use to increase reduces your taxable gain later.

2. Use the Vehicle Buy-and-Sell Strategy

If you file Schedule C on your Form 1040, the buy-and-sell strategy can save you significant tax dollars.

All business vehicles create either a taxable gain or a deductible loss when sold.

The Tax Cuts and Jobs Act (TCJA) eliminated tax-deferred exchanges for vehicles, so a trade-in now counts as a sale.

For sole proprietors and single-member LLCs, this often works in your favor because the sale from the trade-in:

• Creates a gain or loss that does not affect self-employment taxes
• Allows for depreciation and Section 179 expensing on the replacement vehicle, which does reduce self-employment taxes

Example

Billy trades in his old business vehicle, which has a zero basis. The dealer gives him $17,000 toward a new vehicle. This creates a $17,000 gain—taxable, but not subject to self-employment tax.

Billy buys a new pickup with a GVWR over 6,000 pounds. With 83 percent business use, his business cost is $50,000. He deducts the entire $50,000 using 100 percent bonus depreciation.

Billy:

• Saves $7,065 in self-employment tax
• Saves $12,000 in income tax
• Pays $4,080 on the $17,000 gain

Total tax savings: $14,985

3. Cash In on Past Vehicle Trade-Ins

Before 2018, trading in a vehicle triggered a tax-deferred exchange. The basis carried over from vehicle to vehicle under the old Section 1031 rules.

If you used the IRS mileage rate—or even actual expenses—those past trades may have built up a substantial loss in your current vehicle.

Example

Sam has been in business 15 years and has owned four cars:

• Converted his personal car into business use
• Traded that car for a second
• Traded the second for a third
• Traded the third for a fourth (the one he drives now)

He used IRS standard mileage rates each year, never realizing that the depreciation component of the mileage rate was accumulating across each exchange.

If he sells his current vehicle today, he can realize a $27,000 deductible loss—accumulated from all four vehicles.

If you’ve been trading in your business vehicles before 2018, your current vehicle may still carry a large unrealized tax loss.

Calculate your adjusted basis and compare it to your selling price. If the loss is large and you need deductions, sell or trade the vehicle by December 31.

4. Check Your Current Business Vehicle for a Big Deduction

Even vehicles purchased after 2017 can generate large deductions.

Example

Jim bought a $60,000 vehicle in 2021 and used it 85 percent for business. Over four years, he depreciated only $10,000. If he sells it today for $25,000, he has a $19,750 deductible loss.

If you used IRS mileage rates instead of actual expenses, the odds of having a deductible loss are even higher.

5. OBBBA: Convert Your Personal Vehicle to Business and Deduct Up to 100 Percent

If you need a major tax deduction without spending new cash, this is the strategy.

This involves converting a previously purchased personal vehicle—one you or your spouse already own—into a business vehicle under the One Big Beautiful Bill Act (OBBBA).

This strategy turns previously nondeductible personal costs into business deductions. Depending on the vehicle and its business use percentage, you could deduct up to 100 percent of its business cost using bonus depreciation.

If you operate as an S or C corporation, make sure the corporation reimburses you for the vehicle before December 31 if you want the deduction this year.

Takeaways

Your existing vehicle can produce substantial 2025 tax deductions using one or more of these strategies:

1. If your child or spouse is driving your old business vehicle, reclaim and sell it to unlock a deductible business loss.
2. If you’re self-employed, use the buy-and-sell strategy to reduce both income and self-employment tax.
3. If you traded in vehicles before 2018, check for a large accumulated loss; you may uncover a significant deduction.
4. Review your current vehicle for unrealized losses, especially if you used mileage rates.
5. Convert a personal vehicle to business use under OBBBA to potentially deduct up to 100 percent of its cost.