Calculate Your Vehicle's Depreciation
Depreciation is often the largest cost of vehicle ownership - new cars lose 20%+ of their value in the first year alone. This calculator uses three methods to estimate your vehicle's current value: the standard rule of thumb (20% year 1, 15% years 2-5, 10% thereafter), straight-line depreciation for business use, and declining balance for accelerated depreciation. Understanding depreciation helps you make informed buying, selling, and tax planning decisions.
Typical Depreciation Rates by Vehicle Type
Average depreciation for various vehicle categories (5-year depreciation):
| Vehicle Type | Year 1 | Year 3 | Year 5 | 5-Year Total |
|---|---|---|---|---|
| Luxury Sedan | -23% | -44% | -57% | 57% |
| Mid-Size Sedan | -20% | -40% | -52% | 52% |
| Compact Car | -22% | -43% | -55% | 55% |
| SUV (Mid-Size) | -18% | -36% | -48% | 48% |
| Pickup Truck | -15% | -32% | -42% | 42% |
| Electric Vehicle | -25% | -47% | -60% | 60% |
| Hybrid | -20% | -38% | -50% | 50% |
Depreciation Methods Explained
Three ways to calculate depreciation, each serving different purposes:
2026 Tax Depreciation for Business Vehicles
If you use your vehicle for business, IRS depreciation rules for 2026 offer significant tax benefits. Bonus depreciation is approximately 20% in 2026, allowing you to deduct 20% of the vehicle's cost in year one. Section 179 allows deducting up to ~$2.5 million in qualifying equipment (including vehicles), with phase-out starting around $4 million. However, luxury auto limits cap annual depreciation for passenger vehicles: approximately $20,000 year 1, $19,000 year 2, $11,500 year 3, and $7,000 thereafter (2026 figures, 2026 slightly adjusted). Heavy vehicles (SUVs/trucks over 6,000 lbs GVWR) have special Section 179 limits around $30,000, with remaining cost eligible for bonus depreciation. Consult a tax professional for specific calculations.
Factors That Accelerate Depreciation
These factors cause vehicles to lose value faster than average:
How to Minimize Depreciation
Strategies to preserve your vehicle's value:
Frequently Asked Questions
Q:How much does a car depreciate per year?
New cars depreciate approximately 20% in the first year, 15% annually in years 2-5, and 10% annually thereafter. A $40,000 car is typically worth $32,000 after 1 year, $23,000 after 3 years, and $20,000 after 5 years. However, rates vary significantly by brand, model, and market conditions. Luxury vehicles, EVs, and certain brands depreciate faster in percentage terms.
Q:Which cars depreciate the least?
Pickup trucks (especially Toyota Tacoma, Ford F-150) typically depreciate just 30-42% over 5 years. Among cars, Toyota 4Runner, Subaru WRX, Honda Civic, and Toyota Camry hold value exceptionally well. Jeep Wrangler is famous for minimal depreciation. Limited production vehicles and brands with strong reliability reputations (Toyota, Lexus, Porsche) generally depreciate less than average.
Q:Do electric vehicles depreciate faster?
Historically yes, EVs depreciated 50-60% in 5 years vs 45-50% for gas cars, primarily due to rapid battery technology improvements and federal tax credits reducing used EV prices. However, in 2026 this gap is narrowing. Tesla models now depreciate similarly to luxury gas cars. As EV technology matures and tax credits have expired, depreciation rates are normalizing. Popular EVs from established brands now depreciate comparably to their gas equivalents.
Q:How do I calculate depreciation for taxes?
For business vehicles, use MACRS (Modified Accelerated Cost Recovery System), which is a form of declining balance depreciation over 5 years. In 2026, you can also claim approximately 20% bonus depreciation in year one. Passenger vehicles face luxury auto limits (~$20,000 maximum year 1 depreciation). Heavy vehicles (over 6,000 lbs) can use Section 179 deduction (up to ~$30,000) plus bonus depreciation on remaining basis. Consult a tax professional for specific calculations.
Q:Should I buy or lease considering depreciation?
Leasing transfers depreciation risk to the leaseholder - you pay for the expected depreciation over the lease term. If actual depreciation exceeds the estimate, the leasing company loses money. Buying means you bear all depreciation risk but keep any remaining value. Leasing makes sense if you want new cars every 3 years. Buying and keeping 7-10 years minimizes total depreciation cost as depreciation slows after year 5. See our lease vs buy calculator for detailed comparisons.
Q:How does mileage affect depreciation?
High mileage accelerates depreciation significantly. Average is 12,000-15,000 miles/year. Every 1,000 miles over average reduces value by roughly $50-150 depending on vehicle class. A car with 100,000 miles is typically worth 20-30% less than an identical car with 50,000 miles. However, well-maintained high-mileage vehicles from reliable brands (Toyota, Honda, Lexus) depreciate less severely than average brands with similar mileage.
Q:When is the best time to sell to avoid depreciation?
Sell before major mileage milestones (100k, 150k, 200k) as values drop sharply after these. The depreciation sweet spot for buying is 2-3 years old (absorbed major depreciation, still reliable). If selling, do so before the model refresh/redesign is announced, as current generation value drops immediately. Spring/summer typically sees higher used car prices than fall/winter. Sell before reaching 8-10 years old, as depreciation accelerates again for older vehicles.
Q:Does car color affect depreciation?
Yes, mildly. Neutral colors (white, black, silver, gray) depreciate 3-5% less than unusual colors (yellow, orange, bright green, purple) because they have broader resale appeal. Red is neutral for sports cars but hurts resale on sedans. Beige/gold depreciate faster than other neutrals. The effect is smaller than brand, condition, or mileage, but can mean $500-2,000 difference on a $30,000 used car.
Q:How accurate is this depreciation calculator?
This calculator provides estimates using standard depreciation formulas. Actual depreciation depends on many factors not captured: brand reliability reputation, specific model demand, local market conditions, vehicle condition, service history, accidents, and modifications. Use the 'Standard' method for realistic estimates. For business tax calculations, consult an accountant as IRS rules include specific caps and requirements. Actual resale value can vary ±15% from estimates.
Q:Does maintenance affect depreciation?
Absolutely. Vehicles with complete service records sell for 10-20% more than similar vehicles without documentation. Deferred maintenance (worn tires, scratches, dents, mechanical issues) can reduce value by 10-30%. Conversely, meticulous maintenance and upgraded components (new tires, fresh brakes, recent service) command premium prices. Professional detailing before selling can return 200-500% ROI on a $150-300 detail job.