How much does a car depreciate per year?

A typical new car depreciates about 20% in the first year and 15% per year after that. After 5 years, the average car retains about 40–50% of its original value. However, trucks, SUVs, and luxury brands vary significantly — some retain over 60% after 5 years while some sedans drop below 30%.

What is MACRS depreciation for vehicles?

MACRS (Modified Accelerated Cost Recovery System) is the IRS depreciation method for business vehicles. Passenger cars use a 5-year recovery period with rates: 20%, 32%, 19.2%, 11.52%, 11.52%, 5.76% (due to half-year convention). The deduction is capped each year by luxury auto limits, which are roughly $12,400 (Year 1), $19,800 (Year 2), $11,800 (Year 3), $7,160+ (Year 4+). Business use percentage is applied to both the MACRS amount and the cap.

What is the difference between declining balance and straight-line depreciation?

Declining balance depreciation takes a fixed percentage of the remaining value each year — so depreciation is higher early and lower later, matching real car market behavior. Straight-line depreciation subtracts an equal dollar amount each year: (Cost − Salvage) ÷ Years. Declining balance is more realistic for vehicles; straight-line is simpler for accounting purposes.

How do I estimate my car's resale value?

Estimate resale value by applying the average depreciation curve to your original purchase price, then adjusting for mileage and condition. A typical car retains: 80% after 1 year, 68% after 2, 58% after 3, 49% after 4, 42% after 5 years. High mileage (20k+/yr) and poor condition reduce this by 10–25%. Use tools like Kelley Blue Book or CarGurus for exact make/model values.

Vehicle Depreciation Calculator

Vehicles depreciate faster than almost any other asset — the average new car loses 20% of its value the moment it leaves the lot, and another 15% or more each subsequent year. This Vehicle Depreciation Calculator lets you model that loss four ways: Declining Balance uses a realistic compound rate (e.g. 20% year 1, 15%/yr after); Straight-Line spreads the loss evenly over a useful life; MACRS applies the IRS 5-year depreciation schedule used for business vehicle tax deductions (with luxury auto limits); and Resale Estimate projects your car's current market value based on age, mileage, and condition. All four modes generate a year-by-year schedule so you can see exactly when your vehicle hits certain value thresholds.

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calendar_today Updated: April 2026

New

trending_down Declining Balance Depreciation

Purchase Price ($)

1st Year Rate (%)

Annual Rate After (%)

Number of Years

Best for: Estimating real-world market/resale value. New cars typically drop 20% year 1, then 10–15%/yr.

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Enter vehicle details to calculate

table_chart Year-by-Year Schedule

trending_down Avg. Depreciation by Year

Age% Retained% Lost

1 year~80%~20%

2 years~68%~32%

3 years~58%~42%

5 years~42%~58%

7 years~32%~68%

10 years~22%~78%

account_balance MACRS 5-Year Rates

YearRateIRS Cap

120.00%$12,400

232.00%$19,800

319.20%$11,800

411.52%$7,160

511.52%$7,160

65.76%$7,160

2024 IRS limits. ⚠️ = deduction limited by cap

lightbulb Depreciation Tips

•Buy 1–2 years old: avoid the steepest first-year drop
•Trucks & SUVs hold value better than sedans
•High mileage (20k+/yr) cuts resale value 10–20%
•MACRS caps apply per-vehicle regardless of purchase price

How to Use This Calculator

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Choose a Depreciation Method

Select Declining Balance for realistic market value, Straight-Line for accounting, MACRS for business tax deductions, or Resale Estimate for current market value.

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Enter Vehicle Details

Input the original purchase price and method-specific parameters like annual rate, useful life, business use percentage, or current age and mileage.

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Review the Depreciation Schedule

See year-by-year book value, annual depreciation amount, cumulative loss, and the percentage of value remaining.

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Compare & Plan

Use the results to time your vehicle sale, plan tax deductions, or compare the cost of new vs. used vehicles.

The Formula

Declining balance best models real-world used car prices. Straight-line is used for accounting and fleet depreciation. MACRS is the IRS-mandated schedule for business vehicles — deductions are capped by luxury auto limits. The resale estimate combines a baseline depreciation curve with mileage and condition adjustments.

Declining: V_n = P × (1−r₁) × (1−r)^(n−1) | Straight-Line: V_n = P − n×(P−S)/L | MACRS: Deduction_n = P × MACRS_rate_n (capped at IRS limit)

lightbulb Variables Explained

P Purchase price (original cost)
r₁ First-year depreciation rate (typically 20% for new cars)
r Annual depreciation rate after year 1 (typically 10–20%)
S Salvage value (estimated end-of-life value)
L Useful life in years (straight-line method)
MACRS_rate IRS MACRS 5-year schedule: 20%, 32%, 19.2%, 11.52%, 11.52%, 5.76%
V_n Vehicle value at end of year n

tips_and_updates Pro Tips

New cars lose 15–25% in year 1 — buying a 1–2 year old car avoids the steepest drop.

Trucks and SUVs generally hold value better than sedans — some retain 50%+ after 5 years.

High mileage (20k+/yr) can reduce resale value by 10–20% compared to the 15k/yr average.

For business vehicles, MACRS 5-year depreciation lets you recover the cost over 6 tax years due to the half-year convention.

Luxury vehicles are subject to IRS annual dollar caps on depreciation deductions regardless of the MACRS rate.

Frequently Asked Questions

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