IRS Sets 2026 Depreciation Caps for Business Cars at $20,300 First Year

The IRS on March 3, 2026 released Revenue Procedure 2026-15, its annual update of the depreciation limits that apply to passenger automobiles used in a business, along with the related lease inclusion amounts for vehicles leased in 2026. The dollar limits move up only modestly from 2025, but they matter because they set the ceiling for how quickly a business owner can write off the cost of an ordinary car, as opposed to a heavier SUV or truck, which is governed by a different and far more generous set of rules.

What changed

For a passenger automobile placed in service in 2026 for which 100% bonus depreciation is claimed, the first-year depreciation limit rises to $20,300, up $100 from 2025. Vehicles not eligible for or not using bonus depreciation are capped at $12,300 in year one. Both categories then follow the same schedule after year one: $19,800 in year two, $11,900 in year three, and $7,160 for each year after that until the vehicle's cost is fully recovered. The revenue procedure also sets lease inclusion amounts, an offsetting income add-back for lessees of vehicles with a fair market value of $62,000 or more, which claws back some of the deduction advantage that leasing an expensive car would otherwise carry over buying one.

Who is affected

These caps apply specifically to “passenger automobiles,” a term the tax code defines to include cars, trucks, and vans with an unloaded or gross vehicle weight of 6,000 pounds or less. Business owners, real estate professionals, and independent contractors who buy or lease a standard sedan, crossover, or light truck for business use are bound by these limits regardless of how much the vehicle actually costs. A $70,000 luxury sedan used 100% for business, for example, is still capped at the same $20,300 first-year write-off as a $35,000 vehicle; the remaining basis is recovered gradually over the following years under the schedule above, not written off sooner just because the car cost more.

The after-tax math

The more consequential number for many business owners is one Rev. Proc. 2026-15 does not set: vehicles rated above 6,000 pounds gross vehicle weight — most full-size SUVs and many pickup trucks — fall outside the passenger-automobile caps entirely. For 2026, Section 179 allows up to $32,000 of a heavy SUV's cost to be expensed immediately, and because 100% bonus depreciation is currently in effect, the remaining basis above that $32,000 can typically be deducted in full the same year with no dollar ceiling. Example: a consultant buys a $90,000 SUV rated at 6,500 pounds and uses it 100% for business. She can expense $32,000 under Section 179 and the remaining $58,000 under bonus depreciation, for a full $90,000 first-year deduction — more than four times what the same purchase price would generate under the passenger-car caps.

Moves to discuss with your advisor

Because the gap between the passenger-car caps and the heavy-vehicle rules is large, the vehicle's gross vehicle weight rating — printed on the driver's-side doorjamb sticker — is often the single detail that determines the size of a first-year deduction. Business owners planning a vehicle purchase before year-end may want to confirm weight ratings and the percentage of business use with a CPA before signing, since business-use percentage below 100% reduces every figure proportionally, and personal use of a heavy vehicle can also trigger separate substantiation requirements. Owners considering a lease rather than a purchase should also have the lessor's fair-market-value figure checked against the Rev. Proc. 2026-15 lease-inclusion table before signing, since that add-back applies every year of the lease, not just the first.

What to watch

The passenger-auto limits are adjusted for inflation each year, so 2027 figures will be released on a similar schedule in early 2027. Unlike in past years, business owners do not need to watch for bonus depreciation to expire or phase down: the 2025 tax law made 100% first-year bonus depreciation a permanent feature of the tax code for qualifying property acquired after January 19, 2025, rather than a temporary provision on a countdown. What is more likely to move from year to year is the inflation-indexed dollar caps themselves, both for passenger automobiles and for the separate Section 179 ceiling on heavy SUVs, which Treasury adjusts annually.

After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.