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Convert Personal Vehicle to Business, Deduct Up to 100%

  • Writer: Natalya Arjantseva
    Natalya Arjantseva
  • Oct 30
  • 3 min read

If you already own a personal vehicle, 2025 may be the year it turns into a big, “no new cash outlay” tax deduction. Thanks to the One Big Beautiful Bill Act (OBBBA), converting a personal-use vehicle to qualified business use can unlock bonus depreciation up to 100% of its value - starting the day you put it into service for your business.


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When you convert a personal vehicle to business use, the tax law treats it as being placed in service on that conversion date. With OBBBA in 2025, that means you may deduct up to 100% of its allowable basis via bonus depreciation, without buying a new vehicle.


How the Basis Works

Your depreciation basis is the lower of:

  • Fair market value (FMV) on the conversion date, or

  • Your adjusted basis (generally what you paid plus improvements).


Example: 

If you paid $63,000 but it’s worth $31,000 when you convert, your starting basis is $31,000.


Bonus Depreciation vs. Section 179

  • Section 179: Not allowed on assets you convert from personal to business.

  • Bonus Depreciation: Allowed and it’s the default unless you elect out on your return. Also, the “all-or-nothing” rule applies by asset class (e.g., all 5-year property).


Who Gets the Biggest Deductions?

  • Heavy SUVs, pickups, and vans (GVWR > 6,000 lbs) generally qualify for full 100% bonus depreciation in 2025.

  • “Luxury auto” class (≤ 6,000 lbs GVWR) is capped by annual limits. With bonus in 2025, the Year 1 cap is $20,200 (otherwise $12,200).


Example: 

Convert a heavy SUV (6,120 GVWR) worth $47,000 on 8/1/2025 and use it 91% for business. Without electing out, the 2025 deduction is $42,770.


What to Do Step-by-Step

  1. Confirm business use. Establish that you’ll use the vehicle regularly and substantially for business. Keep a contemporaneous mileage log and supporting records (calendar, delivery logs, job routes).

  2. Document the conversion date. This is the day you start using it for business: Photos, insurance changes, signage/wraps, and internal memos help. The conversion date drives your ability to claim 2025 bonus.

  3. Determine your basis. Use the lower of FMV or adjusted basis on the conversion date. Save valuation evidence (KBB/Edmunds printout, appraisals).

  4. Choose your depreciation path. By default, you’re in bonus depreciation, elect out only if your broader asset-class planning requires it.

  5. Apply the right vehicle rule. If GVWR > 6,000 lbs, pursue 100% bonus; if not, apply the luxury auto caps.


Pitfalls to Avoid

  • Using the wrong basis. Don’t use original cost if FMV is lower at conversion; basis is lower of FMV or adjusted basis.

  • Electing inconsistently. Bonus opt-out applies to the entire asset class for that year. Plan before filing.

  • Mixing up sale rules. On losses, use adjusted basis (post-conversion depreciation factored in). On gains, use original cost basis minus post-conversion depreciation—a different (and often higher) basis.


Two Fast Scenarios

Heavy SUV (Best Case):

  • FMV on conversion: $52,000; business use 85%; GVWR 6,500 lbs

  • Potential 2025 deduction: $44,200 (= $52,000 × 85%), assuming no bonus opt-out.


Standard Sedan (Luxury Auto Caps Apply):

  • FMV on conversion: $22,000; business use 90%; GVWR 4,200 lbs

  • 2025 Year-1 max with bonus: $20,200 (then follow annual caps).


Takeaways

OBBBA brought back 100% bonus depreciation in 2025. If you’re driving a vehicle that truly serves the business, a careful conversion - properly documented and elected - can create a material deduction this year, with no new cash going out.


Why This Matters for Operators:

  • Turn sunk personal dollars into a current-year deduction that can offset 2025 profits.

  • Aligns with real-world use: multi-unit owners often repurpose existing vehicles for manager cross-store visits, supply runs, catering, and deposit trips.

  • Simplifies cash planning: no new vehicle purchase required to capture a meaningful deduction.


FAQs

Can I use Section 179 on a converted vehicle?

No. Section 179 is not allowed on converted personal assets; use bonus depreciation instead.


Do I have to buy anything new?

No. You’re leveraging a prior sunk cost by converting what you already own.


What if I have other 5-year assets this year?

If you don’t elect out, bonus applies to all assets in that class placed in service. Plan asset timing and elections together.


What happens when I sell the vehicle later?

Losses use adjusted basis; gains use original cost basis (minus post-conversion depreciation). Different rules, different outcomes - file correctly.

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