The Internal Revenue Service has updated the depreciation limits for passenger vehicles placed in service in 2026. The annual limits apply to cars, trucks, and vans used for business purposes and determine the maximum amount businesses can deduct each year. The adjustments are updated annually to reflect inflation and changes in vehicle prices.
After declining in the prior year, the depreciation limits for 2026 increased slightly. The adjustments are based on inflation data tied to the automobile component of the Chained Consumer Price Index for Urban Consumers. Changes in the prices of new and used vehicles impact these annual adjustments. According to the U.S. Bureau of Labor Statistics, the price of used cars and trucks declined by 2% during the 12 months ending in January 2026, while the price of new vehicles increased by 0.4% over the same period. These figures are not seasonally adjusted.
Depreciation limits for vehicles using bonus depreciation
Businesses that claim first-year bonus depreciation on qualifying passenger vehicles can deduct the following maximum amounts:
- Year 1: $20,300
- Year 2: $19,800
- Year 3: $11,900
- Year 4 and each year after: $7,160
These limits determine the maximum depreciation deduction allowed each year for passenger vehicles used for business.
Depreciation limits when bonus depreciation is not used
Different first-year limits apply if bonus depreciation is not claimed. In that case, the first-year depreciation limit for vehicles placed in service during 2026 is $12,300. The depreciation limits for the second, third, and later years remain the same as those for vehicles eligible for bonus depreciation.
Rules for leased passenger vehicles
Special rules apply when a business leases a passenger automobile:
- Lease deductions must be reduced by a calculated amount each year.
- The reduction is based on the vehicle’s fair market value at the start of the lease.
- The IRS publishes annual tables showing the inflation-adjusted amounts that must be included in income for leased vehicles beginning in 2026.
What businesses should consider
Businesses planning to purchase or lease vehicles in 2026 should review the updated depreciation limits when evaluating their options. Understanding how these limits affect annual deductions can help companies estimate the tax impact of acquiring business vehicles. Companies should also consider whether bonus depreciation applies, as it can significantly change the amount that may be deducted in the first year.
Because vehicle purchases and lease arrangements can affect both current deductions and long-term tax planning, it is important to review these decisions carefully. Businesses should work with their tax advisors to determine the most tax-efficient way to structure vehicle acquisitions and ensure that deductions are calculated correctly within current limits.
Contact LRS for guidance
If your business is considering purchasing or leasing vehicles in 2026, the tax professionals at LRS can help you evaluate your options and understand how the updated depreciation limits may affect your tax planning.
For more information, contact Sal Schibell at Lawson, Rescinio, Schibell & Associates to discuss how these rules may apply to your business.
Disclaimer: This content is for informational purposes only and should not be considered professional advice.
Source: Rev. Proc. 2026-15. Internal Revenue Service. March 3, 2026.