The Internal Revenue Service has released updated depreciation limits for passenger automobiles placed in service during the 2026 tax year. These limits apply to passenger vehicles used for business purposes, including cars, trucks, and vans. The adjustments are made annually to account for inflation and reflect changes in vehicle pricing.
After a decrease in the prior year, the depreciation limits for 2026 have increased slightly. The annual updates are based on inflation data tied to the automobile component of the Chained Consumer Price Index for Urban Consumers.
For passenger vehicles eligible for first-year bonus depreciation, the maximum depreciation deduction for automobiles placed in service during 2026 is $20,300 in the first year. The limits for subsequent years are $19,800 in the second year, $11,900 in the third year, and $7,160 in the fourth year and in each year after that.
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.
The IRS also updated the rules governing leased passenger automobiles. When a business leases a passenger vehicle, the tax deduction for the lease payment must be reduced by a specific amount. This reduction is calculated using a formula tied to the vehicle’s fair market value at the start of the lease.
For leases beginning in calendar year 2026, the IRS released updated tables showing the inflation-adjusted dollar amounts that must be included in income each year of the lease. These amounts correspond to ranges of a vehicle’s fair market value and are used to determine how much of the lease deduction must be reduced.
Vehicle pricing trends influence the annual adjustments. According to data from 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.
Contact your Stephano Slack tax manager or partner at 610-687-1600 or TaxInfo@StephanoSlack.com to discuss your situation.
Author Jackie Himes, CPA, partner, is a trusted authority in serving high-net-worth individuals and closely held businesses. She provides strategic financial guidance that fuels growth and sustainability. She can be contacted at 610-710-4057 or Jhimes@stephanoslack.com.
Disclaimer: This content is for informational purposes only and doesn’t constitute professional advice.
Source: Rev. Proc. 2026-15. Internal Revenue Service. March 3, 2026.
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