2025 Guide to Dealership Accounting Depreciation

IRS Limits on Vehicle Depreciation

The IRS sets annual caps on how much depreciation you can deduct for passenger vehicles used in business. For 2025, the maximum first-year depreciation deduction for a standard business-use vehicle is $20,200, assuming 100% business use. If the vehicle is only partially used for business, the deduction must be adjusted proportionally. For example:

• 80% business use = $16,160 deductible in Year 1.

These limits fall under what are commonly known as the “luxury auto depreciation caps.” But don’t let the term “luxury” mislead you—they apply to many everyday vehicles as well.

A Smart Workaround: Buy a Heavy SUV or Pickup

You can legally sidestep these limits by purchasing a vehicle with a gross vehicle weight rating (GVWR) over 6,000 pounds, such as many full-size SUVs or trucks. These heavy vehicles are not subject to the luxury auto limits and can qualify for generous deductions under Section 179 and bonus depreciation rules.

2025 Deduction Breakdown:

• Section 179 limit for SUVs: $31,300

• Bonus depreciation rate: 40% (on remaining cost after Section 179)

• MACRS depreciation: Applies to what’s left

Example:

If your dealership buys a heavy SUV for $60,000 and uses it 100% for business:

• Section 179 deduction: $31,300

• Bonus depreciation (40% of $28,700): $11,880

• MACRS depreciation on remaining $16,820: $3,364
  Total first-year deduction: $46,544
  That’s about 78% of the total cost deductible in the first year—an excellent strategy to reduce taxable income.

Note: Long-bed pickups used for business may qualify for even more favorable treatment under Section 179, as they’re not subject to the $31,300 SUV cap.

Leasing Instead of Buying? Know This Rule

If your dealership chooses to lease a vehicle instead of purchasing, there’s a lesser-known rule that can affect your deduction.

If the fair market value of the leased vehicle exceeds $62,000 in 2025, the IRS requires you to reduce your lease expense deduction each year by an amount listed in IRS tables (Rev. Proc. 2025-16). This adjustment mirrors the depreciation cap imposed on purchased vehicles.

It’s not income you add to your return—instead, it simply reduces the deductible portion of your lease payments. This is an easy rule to overlook, but failing to apply it could lead to compliance issues.

Final Thoughts: Be Strategic with Depreciation in 2025

For dealership owners and controllers, understanding the nuances of dealership accounting depreciation is critical to optimizing tax savings. Whether you’re purchasing a vehicle outright or leasing it, staying compliant while maximizing deductions requires planning—and often, weight ratings and use percentages matter more than the vehicle’s sticker price.

Partner closely with your dealership CPA to ensure you’re using every tool available under Section 179, bonus depreciation, and lease adjustment rules. In an industry where margins are tight, smart depreciation planning can drive real results.