When a business leases a vehicle, the lessee generally does not own the vehicle and therefore does not depreciate it. If the business later purchases the vehicle, the purchase creates a depreciable ownership interest. The vehicle is used property, but qualifying used property can be eligible for bonus depreciation.
Current bonus-depreciation rule
For certain qualified property acquired and placed in service after January 19, 2025, current federal law generally provides a 100% additional first-year depreciation deduction. Eligibility is not automatic merely because a vehicle was purchased: the property, acquisition, placed-in-service date, and business use must satisfy the applicable requirements.
Business use and vehicle limitations
Only the business-use portion of the vehicle’s basis is potentially depreciable. Passenger automobiles can be subject to annual depreciation limits, and listed-property substantiation rules require reliable records of business use. Section 179 has separate eligibility, business-income, and vehicle rules.
Example
If a business purchases a previously leased qualifying vehicle for $20,000 and substantiates 80% qualified business use, the starting business basis is generally $16,000 before considering other limitations or adjustments. Whether the full amount is deductible in the first year depends on the vehicle and the taxpayer’s complete facts.
This article provides general information and is not individualized tax advice.