Looking for a big deduction without a new cash outlay? This strategy turns a prior-year sunk cost—your existing personal vehicle—into a current-year business deduction. Thanks to the OBBBA vehicle deduction, 100% bonus depreciation is back and, if your vehicle and records qualify, the write-off can be substantial.
How the OBBBA Vehicle Deduction Works
When you convert a personal vehicle to business use, the law treats it as placed in service in your business on the conversion date. From that point, you can begin depreciating it and claim deductions.
Your depreciable basis is the lesser of:
- the vehicle’s fair market value (FMV) on the conversion date, or
- its adjusted basis (generally what you paid plus improvements).
Bonus Depreciation vs. Section 179
- Section 179: Not available on assets converted from personal to business use.
- Bonus depreciation: Is available and is the default method unless you elect out on your return.
The election is made by “class.” If you place an auto (a five-year class asset) and seven other five-year assets in service, you must either use bonus on all eight or elect out for the entire five-year class.
Which Vehicles Get What?
Heavy SUVs, Pickups, and Vans (> 6,000 lbs GVWR)
These generally qualify for the full 100% bonus depreciation (multiplied by your business-use percentage), often yielding the biggest first-year deduction.
Passenger Autos (≤ 6,000 lbs curb/unloaded weight)
Passenger vehicles are subject to the luxury auto depreciation limits, which cap first-year write-offs even when bonus depreciation is available.
Luxury Passenger Auto Depreciation Limits
| Year | With bonus depreciation | Without bonus depreciation |
|---|---|---|
| 2025 | $20,200 | $12,200 |
| 2026 | $19,600 | $19,600 |
| 2027 | $11,800 | $11,800 |
| Each subsequent year | $7,060 | $7,060 |
Note: Bonus affects the first year only for passenger autos; subsequent years follow the limits above.
Example 1: You convert a heavy SUV (GVWR 6,120) on Aug 1, 2025. FMV is $47,000 and business use is 91%. You don’t elect out of bonus. 2025 deduction ≈ $42,770 (91% × $47,000).
Example 2: You convert a passenger car (curb weight 4,500 lbs) on Aug 1, 2025. FMV is $20,000 and business use is 90%. You don’t elect out of bonus. 2025 deduction ≈ $18,000 (90% × $20,000), subject to luxury auto caps.
Standard Mileage vs. Actual Expenses
To claim bonus depreciation (or any depreciation), you must use the actual expense method. If you choose the standard mileage rate, you do not take bonus or Section 179.
Checklist Before You Convert
- Document FMV: Keep valuation printouts/quotes for the conversion date.
- Track business use: Start a contemporaneous mileage log; separate business and personal miles.
- Insurance & registration: Ensure coverage and titling reflect business use.
- Method choice: Decide between actual vs. standard mileage (actual required for depreciation).
- Know the caps: Passenger autos face luxury limits; heavy vehicles often allow larger deductions.
- Be consistent: Remember class-wide election rules for bonus depreciation.
- Mind recapture risk: If business use later drops ≤ 50%, ADS and recapture can apply.
- Entity mechanics: S-corp vs. sole prop policies (reimbursement, ownership) affect the approach.
Basis Rules When You Sell
- Losses: Use adjusted basis (typically FMV at conversion minus depreciation).
- Gains: Use original cost basis minus post-conversion depreciation (usually higher than adjusted basis, which reduces taxable gain).
Planning note: Most vehicles depreciate over time, but classics/antiques can appreciate.
Why This Strategy Works
Most personal assets generate taxable gains but non-deductible losses. Converting a vehicle to business use flips the script by creating deductions from a cost you already paid—no new cash out the door. With the OBBBA vehicle deduction reinstating 100% bonus depreciation, it’s worth asking how much your current vehicle could produce in 2025 deductions.
Want to model your deduction before you convert?
Ken-Mar Tax helps contractors, realtors, consultants, and solopreneurs convert vehicles the right way—maximizing legal deductions and staying compliant.
Related Articles:
Turn Your Business Vehicle Into a Tax-Smart Asset
Can You Write off More Than One Vehicle?
Combine a Home Office Tax Deduction with a Heavy Vehicle for Major Tax Write-Offs
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