How to Deduct Your Personal Vehicle Under the OBBBA 2025 Rule

Thanks to the One Big Beautiful Bill Act (OBBBA), you may beeligible for a valuable “no new cash outlay” tax deduction beginning in 2025.

Here’s how it works: If you convert a personal-use vehicleto business use, the law treats it as placed in service on the conversion date.Thanks to OBBBA’s reinstatement of 100 percent bonus depreciation, you maydeduct up to 100 percent of the vehicle’s fair market value—as long as youdon’t opt out of bonus depreciation.

For example, if your converted vehicle is worth $31,000 andyou use it 70 percent for business, you could deduct $21,700 on your 2025return.

Heavy SUVs, pickups, and vans with a gross vehicle weightrating (GVWR) over 6,000 pounds qualify for full bonus depreciation. Smallervehicles are subject to “luxury auto” limits—but even those can allow up to$20,200 in first-year deductions.

A few rules to know:

• You must use the lower of your vehicle’s fair market value or adjusted basis at the time of conversion to business use.
• Section 179 expensing is not allowed for converted assets, but bonus depreciation is automatically applied unless you actively opt out.
• All assets in the same depreciation class are treated the same for bonus depreciation—you’re in or out for the entire group.

If you later sell the vehicle, your basis for calculatinggains or losses changes depending on whether it’s a gain or loss.

This is a powerful way to deduct the cost of an existingasset without spending new money.

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