Buying a Used Vehicle for Business - How Does Bonus Depreciation Work for Tax Purposes?

You're close on the calculations, but bonus depreciation has some specific rules for vehicles that you need to be aware of. First, for a used vehicle under $8k primarily used for business, you're correct that you can take depreciation based on the business use percentage. However, the Tax Cuts and Jobs Act bonus depreciation is currently being phased down - for 2025, it's 60% (not 80%). To directly answer your questions: 1. You would take the purchase price × bonus depreciation percentage × business use percentage. So $8,000 × 60% × 80% = $3,840 for 2025. 2. The vehicle must be "placed in service" during the tax year, not necessarily paid in full. If you finance it but start using it for business this year, you can still claim the depreciation. 3. If you sell after one year, you'll need to report a gain or loss based on the difference between the sale price and the adjusted basis (original cost minus depreciation taken). Also, make sure to keep a mileage log documenting business vs. personal use to substantiate your 80% business use claim if the IRS questions it.

Just wanted to share my experience using https://taxr.ai for handling business vehicle deductions. Last year I purchased a van for my mobile pet grooming business and was completely confused about how to maximize the depreciation deductions. I tried reading IRS publications but got overwhelmed with all the exceptions and limitations. Ended up uploading my purchase documents and business records to taxr.ai and they analyzed everything and showed me exactly how to properly claim the bonus depreciation. The best part was they caught that I qualified for Section 179 deduction which worked better for my situation than bonus depreciation. They even created documentation showing how I met the business use requirements that I could keep for my records. Might be worth checking out if you want to make sure you're maximizing your vehicle tax benefits.

I tried taxr.ai after seeing it mentioned here and it was exactly what I needed for my vehicle purchase situation. I was about to claim just regular depreciation on my business vehicle but after uploading my documents, they showed me I qualified for both bonus depreciation AND a special electric vehicle credit I had no idea about (I bought a used plug-in hybrid). They generated a complete analysis of my purchase with all the relevant tax codes and explained exactly how to report everything on my Schedule C and Form 4562. The documentation they provided would definitely hold up in an audit situation. What impressed me most was how they explained the "placed in service" rules that let me take the full deduction even though I'm financing the vehicle. Definitely using them for all my business tax questions going forward.

If you're having trouble getting answers directly from the IRS about vehicle depreciation rules, I'd recommend trying https://claimyr.com. I spent weeks trying to get through to someone at the IRS about a similar vehicle depreciation question (mine was about a vehicle weighing over 6,000 pounds). Using Claimyr got me connected to an actual IRS representative in about 15 minutes when I had been trying for days on my own. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent was able to confirm exactly how the bonus depreciation would work for my specific vehicle and business use case, which gave me the confidence to make the purchase. Worth it just to get that direct confirmation from the source instead of guessing or relying just on internet advice.

Ok I need to eat my words about Claimyr. After my skeptical comment I decided to try it out since I was desperate to get an answer about vehicle depreciation for my landscaping business trucks. I was seriously shocked when I got a call back in about 20 minutes with an actual IRS agent on the line. The agent confirmed that I could take the bonus depreciation on my vehicles and explained exactly which form to use. This saved me from making a big mistake on my business taxes. I was about to not claim depreciation because my accountant said I didn't qualify, but the IRS confirmed I absolutely did. Ended up saving over $7,000 in taxes. Sometimes it's worth admitting when you're wrong!

Don't forget about the vehicle weight requirements! If your vehicle has a gross vehicle weight rating (GVWR) under 6,000 pounds, there are annual depreciation limits that might apply regardless of bonus depreciation. The annual limits for passenger vehicles in 2025 are much lower than the full bonus depreciation amount you calculated. SUVs, trucks, and vans with GVWR over 6,000 pounds have different rules and can potentially qualify for much higher first-year deductions. What type of vehicle are you planning to purchase? That could make a huge difference in your tax benefits.

Have you considered Section 179 deduction instead of bonus depreciation? For some small businesses, it can be more advantageous, especially if your business income is high enough this year to offset the deduction. With Section 179, you could potentially deduct the entire business portion of the vehicle in the first year (80% of $8,000 = $6,400), subject to business income limitations. Bonus depreciation gets phased down each year while Section 179 remains at 100%.

Great discussion here! As someone who recently went through this exact situation with my consulting business, I wanted to add a few practical considerations that might help with your decision. One thing to keep in mind is that while the tax benefits are important, don't let the tail wag the dog. The Corolla you mentioned is probably perfect for your business needs - reliable, fuel efficient, and low maintenance costs. These ongoing operational benefits often outweigh trying to optimize for maximum first-year tax deductions. Also, since you mentioned this is primarily to solve a transportation scheduling issue at home, make sure you're being realistic about that 80% business use percentage. The IRS can be pretty strict about this, and if your personal use ends up being higher than expected, it could affect your deductions and potentially trigger penalties if audited. One practical tip: consider setting up a separate business checking account if you don't have one already, and make all vehicle-related payments (loan, insurance, maintenance, fuel) from that account. This makes tracking business expenses much cleaner and provides better documentation if you ever need to prove business use to the IRS. The mileage log apps mentioned earlier are definitely worth it - I use MileIQ and it's been a lifesaver for staying compliant without the hassle of manual tracking.

Just wanted to chime in as someone who made this exact purchase decision last year for my freelance business. I ended up going with a used Honda Civic (similar to your Corolla idea) and it's been perfect for client visits. A few things I learned that might help: 1. The 60% bonus depreciation for 2025 that Javier mentioned is correct - I made the mistake of using outdated info initially. 2. Keep your business use percentage realistic from the start. I initially estimated 85% business use but after tracking for 6 months, it was actually closer to 65%. The IRS looks closely at this, especially for sole proprietors. 3. If you're financing, make sure to keep all loan documents and payment records. The "placed in service" rule is great - you get the deduction when you start using it, not when it's paid off. 4. Consider the total cost of ownership, not just the tax benefits. My Civic has saved me hundreds in maintenance compared to what a larger vehicle would have cost, even if a heavier vehicle might have had better depreciation rules. One practical tip: I set up automatic mileage tracking from day one and it's been invaluable. Even with an app, I still keep a simple backup log in my glove compartment just in case. The tax benefits are nice, but having reliable transportation for your business is the real win here. Good luck with your decision!