For the first time in the past three years, the IRS has set lower depreciation limits for passenger vehicles. These limits are updated annually for inflation.
According to Rev. Proc. 2025-16, the depreciation limit for passenger vehicles eligible for Sec. 168(k) additional first-year, or “bonus,” depreciation is $20,200 in the first tax year, which is $200 less than the 2024 limit. In previous years, the limits increased by $1,000 each from 2021 to 2022 and 2022 to 2023, with a smaller increase of $200 from 2023 to 2024.
For the following years, the limits are $19,600 in the second tax year (a decrease of $200 from 2024), $11,800 in the third year (a $100 decrease), and $7,060 for each subsequent year (also a $100 decrease). If bonus depreciation doesn’t apply, the first-year limit for 2025 is $12,200, which is $200 lower than in 2024, with the same limits applying to the following years as those for vehicles with bonus depreciation.
The revenue procedure also includes a table showing inflation-adjusted amounts for leases starting in calendar year 2024, outlining how deductions for leased passenger vehicles must be reduced under Sec. 280F(c)(2). This reduction is represented as an inclusion in gross income, determined by applying a formula to a set dollar amount. These dollar amounts, for each year of the lease, correspond to the vehicle’s fair market value ranges.
According to the Bureau of Labor Statistics, for the 12 months ending in January 2025, the price of used cars and trucks increased by 1%, while the price of new cars fell by 0.3%. Both figures are not seasonally adjusted.
