Vehicle Tax Deductions for Small Businesses: 2025 BBB Act Deep Dive
Executive Summary: This guide explains how small businesses can maximize vehicle-related tax deductions under the One Big Beautiful Bill Act of 2025 (BBB Act). Learn how Section 179 expensing, bonus depreciation, and the new auto loan interest deduction work together to help you save more.
1️⃣ Understanding Business Vehicle Deductions
Before claiming accelerated depreciation, you must choose between the Actual Expense Method or the Standard Mileage Rate Method. This decision impacts your deductions for the life of the vehicle.
Actual Expense Method
This method lets you deduct the business-use portion of all vehicle costs, including gas, insurance, registration fees, repairs, and depreciation. To benefit from Section 179 and bonus depreciation, you must use this method from year one.
Standard Mileage Rate Method
In 2024, this rate is 67 cents per mile. It’s simple but you can’t claim actual costs separately. Remember: once you choose mileage rate, you generally can’t switch to actual expenses later.
2️⃣ Section 179 Expensing under the BBB Act
The BBB Act boosts the Section 179 deduction to $2.5 million for 2025, with a $4.0 million phase-out threshold. But passenger vehicles have lower caps:
- Heavy SUVs/Trucks (GVWR > 6,000 lbs.): Capped at ~$31,300 for 2025.
- Passenger Cars (GVWR < 6,000 lbs.): Luxury auto limits apply (~$20,400 first-year cap).
3️⃣ 100% Bonus Depreciation Restored
The BBB Act restores 100% bonus depreciation through 2029. Unlike Section 179, bonus depreciation can create a net operating loss (NOL) and is not limited by taxable income.
4️⃣ New Auto Loan Interest Deduction
From 2025–2028, taxpayers can deduct up to $10,000 of interest on loans for new personal-use vehicles. Business owners must carefully allocate interest between business (deductible on Schedule C) and personal (deductible on Form 1040).
5️⃣ Practical Example
Example: A sole proprietor buys a heavy SUV for $80,000, uses it 80% for business, and takes:
- $31,300 Section 179 deduction
- $32,700 bonus depreciation
- Saving ~$20,480 in federal taxes in the first year!
6️⃣ Key Compliance Tips
- Keep detailed mileage logs to prove business use.
- Watch out for depreciation recapture if business use drops below 50%.
- Check your state’s rules — many do not fully conform to federal deductions.
📌 Helpful Links
Need help? Stay tuned for more practical U.S. tax-saving tips for small businesses!
