Cars qualifying for the "Big Beautiful Bill" (BBB) tax deduction must be new, U.S. final assembly vehicles (cars, SUVs, trucks, vans, motorcycles < 14k lbs) purchased with a loan between 2025-2028, for personal use, with income limits ($100k single/$200k joint MAGI), allowing up to a $10,000 annual deduction for loan interest, as highlighted by sources like the IRS, Kiplinger, and Bipartisan Policy Center. You can check final assembly by looking for a VIN starting with 1, 4, or 5, or by checking the window sticker, according to Chino Hills Ford and Pinkerton Chevrolet.
Starting with loans originated after December 31, 2024, individuals can deduct up to $10,000/year in interest on qualifying new personal-use vehicles. The 100% Bonus Depreciation deduction for business vehicles has been restored allowing business to deduct the full cost of qualifying vehicles.
The vehicle is an electric vehicle, plug-in hybrid electric vehicle, or fuel cell vehicle. The MSRP of a pickup truck, van, or SUV is $80,000 or less; for all other passenger vehicles, $55,000 or less.
Only vehicles with a GVWR over 6,000 lbs qualify for 100% bonus depreciation without luxury auto limits.
Cars that qualify for 100% capital allowances (First-Year Allowance) are brand new, fully electric cars with zero CO2 emissions (0 g/km), allowing businesses to deduct the entire cost from taxable profits in the year of purchase, provided they meet environmental and usage conditions and aren't second-hand. This significant tax relief applies to new, unused zero-emission vehicles, including certain electric vehicles and even some traditional black cabs, but not hybrids or used EVs.
These include:
If you have a net loss for your business, you are able to claim bonus depreciation (but not the Section 179 deduction). If you have expensive purchases, claim bonus depreciation because you won't face a limit on spending. If you buy assets with a shorter recovery period, use bonus depreciation.
Yes, 100% bonus depreciation is back for eligible property acquired and placed in service after January 19, 2025, thanks to the "One, Big, Beautiful Bill" (OBBB) Act, which permanently reinstated it, reversing the phase-out schedule that would have reduced it to 40% for 2025 under prior law. This allows businesses to deduct the full cost of new equipment, machinery, and other qualified assets in the first year, significantly impacting tax planning.
If you want the most tax-efficient company car, electric and low-emission vehicles are the way to go.
The eligible vehicles are:
1 (The “One Big Beautiful Bill” Act), which did not extend Enhanced Premium Tax Credits. As a result, premiums will increase significantly starting on Jan. 1, 2026. What this means is that premium tax credits are still available for 2026, but many people could receive less than they did before.
If the vehicle weighs more than 6,000 pounds and is used more than 50% for business, you can write off up to $28,900 in the first year, and potentially even more with bonus depreciation. Let's break it down: Buy a qualifying vehicle for $60,000, and you could write off a large portion of that cost in year one.
The Big Beautiful Bill Act (H.R. 1), is a federal law that updates many parts of the tax code for both individuals and businesses. A prominent change relates to bonus depreciation, which is part of Section 168(k) of the Internal Revenue Code.
Vehicles qualifying for 100% bonus depreciation are primarily heavy-duty trucks, large vans, and SUVs with a Gross Vehicle Weight Rating (GVWR) over 6,000 pounds that are used more than 50% for business, with the full 100% deduction applying to assets placed in service after January 19, 2025, under the OBBB Act, allowing for immediate expensing of the entire cost, unlike luxury cars capped by IRS rules.
The OBBB brought back 100% bonus depreciation, starting in tax year 2025. It also made the provision a permanent part of the tax code. Qualified property acquired and placed into service after January 19, 2025, may now be eligible for 100% bonus depreciation.
For tax year 2025, a vehicle with a GVWR over 6,000 pounds can offer significant tax deductions, primarily through Section 179 expensing, allowing immediate write-offs for business use, though SUVs have a $31,300 cap, while heavy trucks/vans (over 6,000 lbs GVWR) can qualify for much larger first-year deductions, potentially up to 100% with bonus depreciation, for qualifying business use and placement in service by year-end.
Disadvantages of Car Allowances
Car allowances do not ensure coverage of all vehicle-related expenses. Employees bear responsibility for insurance, maintenance, depreciation, and other costs. Because the IRS treats most car allowances as taxable income, the take-home amount may fall short of actual expenses.
Individuals and Partnerships, such as landlords and property investors, must be liable for Income Tax. Entities that are exempt from these taxes, such as pension funds, government bodies, charities, and public sector entities such as the police force, cannot claim capital allowances.
Some all-electric and plug-in hybrid vehicles qualify for a $3,700 to $7,500 federal tax credit. Many states also offer additional incentives for purchasing new EVs. Find tax credits and incentives in your state.