If your dental practice uses business vehicles, a recent IRS update could affect your tax deductions. For the first time in three years, the IRS has lowered depreciation limits for 2025. These changes, tied to inflation and market trends, impact how dental professionals claim vehicle-related expenses. Here’s a simple breakdown.

Lower Depreciation Limits for Business Vehicles

Each year, the IRS adjusts vehicle depreciation limits. For vehicles placed into service in 2025, the new limits are:

• With First-Year Bonus Depreciation:
  • Year 1: $20,200 ($200 lower than 2024)
  • Year 2: $19,600 ($200 lower than 2024)
  • Year 3: $11,800 ($100 lower than 2024)
  • Each following year: $7,060 ($100 lower than 2024)
• Without First-Year Bonus Depreciation:
  • Year 1: $12,200 ($200 lower than 2024)
  • Later years: Same as above

For dental professionals deducting vehicle expenses, this marks a shift after several years of increases.

What About Leased Vehicles?

If you lease a vehicle for your practice, the IRS requires an income inclusion adjustment to ensure fair tax treatment between leased and owned vehicles. The amount varies based on the vehicle’s market value and lease duration. If you’re leasing, talk to your accountant to see how this affects your tax planning.

Why Did the Limits Change?

The IRS adjusts depreciation limits based on market trends. Recent Bureau of Labor Statistics data shows:

• Used car prices increased by 1% in the past year.
• New car prices dropped by 0.3% in the same period.

These shifts influenced the IRS’s decision to reduce depreciation limits.

How Does This Affect Your Dental Practice?

• Tax Planning – Thinking of buying or leasing a vehicle? These updates may impact your tax benefits. Check with your accountant for the best approach.
• Compliance – If you lease, be sure you’re calculating required income inclusions to stay IRS-compliant.
• Budgeting – Since depreciation affects cash flow and tax deductions, plan accordingly to avoid surprises.

What Should You Do Next?

If you’re considering purchasing or leasing a business vehicle in 2025, understanding these IRS updates is key to maximizing deductions and avoiding tax pitfalls. Need help? Contact us today for advice on tax strategies and vehicle deductions for your practice.