If a vehicle is used for work, there’s a good chance depreciation has come up in your tax planning. The IRS allows taxpayers to deduct the cost of a vehicle used for qualifying purposes, and under recent law, a meaningful portion of that cost can be recovered in the very first year. For many people, it’s one of the larger deductions they see. 

What’s less often discussed is what happens when that vehicle is eventually sold. Because prior depreciation reduces the vehicle’s tax basis, any gain on the sale gets recaptured and taxed as ordinary income under Section 1245. The deduction that felt like a win in year one becomes part of a different calculation the day the vehicle changes hands. 

The One Big Beautiful Bill Act, signed in July 2025, restored 100% bonus depreciation for qualifying vehicles acquired after January 19, 2025. That’s a significant change, and its effect isn’t the same for everyone. Someone who purchased a vehicle in 2023 took an 80% deduction. Someone who bought in early 2025 may have been limited to 40%. Someone who bought after the OBBBA took effect could deduct the full cost. Each situation carries different recapture exposure down the road, and understanding where you stand matters before any sale or trade-in decision is made. 

At MTA, we’ve been helping clients navigate these decisions since 1985. If a vehicle is on your return, it’s worth knowing the full picture before anything changes.