Understanding Depreciation Expenses for Owner-Operators

Depreciation is one of the most significant tax deductions for small businesses, particularly those with substantial assets, such as owner-operators in the trucking industry. The term’ depreciation’ simply refers to how you expense the costs of business assets (truck, trailer, tools, tech, etc.) for tax purposes.

Understanding how to most effectively depreciate assets will help minimize your business’s tax liability at year’s end. The Internal Revenue Service (IRS) allows a few different ways to depreciate tangible assets.

Depreciation Methods

The theory behind depreciation is that your business should be able to expense a tangible asset over the course of that asset’s life. There are several ways to do this. Straight-line depreciation is the simplest method, but the IRS also allows three other methods: MACRS, Section 179, and Bonus Depreciation.

Straight-Line Depreciation

Straight-line depreciation deducts the same amount each year over the course of an asset’s lifespan. For example, a $50,000 asset that lasts 5 years would be depreciated $10,000 each year.

Straight-line depreciation fails to account for the non-even nature of depreciation. Assets usually depreciate more early on, and less later on, once they aren’t worth as much. Because of this, straight-line depreciation is rarely used for tax purposes.

Modified Accelerated Cost Recovery System (MACRS)

Think of the Modified Accelerated Cost Recovery System (MACRS) as the default depreciation method for business assets. The system addresses both the non-linear nature of depreciation and the fact that it’s not always clear how long assets, such as trucks, will last.

MACRS assigns a specific timeframe based on an asset’s classification. Most trucking equipment is depreciated according to a 5-year schedule, but some commercial vehicles follow a 7-year schedule. (Other assets have between 3- and 31.5-year schedules).

The 5-year schedule would be as follows when applied to the $50,000 asset noted above:

Year	Remaining Amount to Depreciate	Allowed Depreciation Percentage	Allowed MACRS Depreciation
1	$50,000	20.00%	$10,000
2	$40,000	32.00%	$16,000
3	$24,000	19.20%	$9,600
4	$14,400	11.52%	$5,760
5	$8,680	11.52%	$5,760
6*	$2,920	5.76%	$2,920

*MACRS schedules generally contain an additional half-year of depreciation.

Using the MACRS depreciation method allows you to recover the cost of major assets fairly quickly, and it somewhat mirrors the typical real-world depreciation of a commercial vehicle.

Section 179

Section 179 is a special tax code provision that allows businesses to deduct the full purchase price of qualifying new or used equipment in the year it was placed in service. Instead of depreciating the asset over five or more years, you can treat the entire cost as an expense for the current tax year.

There are several limitations and restrictions that apply to the Section 179 provision:

• Monetary Limit: The Section 179 deduction has a limit of $2.5 million in 2025 and $4 million in 2026.
• Net Loss: You can’t use a Section 179 deduction to create a net loss for your business; thus, the deduction can not exceed net taxable revenue.
• Vehicles: Some large commercial vehicles can’t be fully depreciated in Year 1, but must be depreciated over 2 or more years.

Other details can also impact how your business is able to use the Section 179 provision.

Section 179 is commonly used for depreciating electronics, software programs (e.g., GPS systems), and assets of similar value. Whether you should use this for your truck depends on the specifics of your situation. A tax professional can help answer that question.

Bonus Depreciation

Bonus Depreciation is another accelerated depreciation method that allows you to deduct a percentage of an asset’s cost in its first year of service. The percentage was being reduced in previous years, but has been restored to 100% for 2025.

You can generally take advantage of Bonus Depreciation, so long as the equipment is new to you, regardless of whether it’s actually new or used. This method also isn’t subject to the same limits as Section 179, and Bonus Depreciation can be used to create a net loss.

Not all states allow Bonus Depreciation or Section 179 depreciation for state tax purposes, but many do allow one or both.

Depreciation Expenses

Your Truck

Tractor-trailer trucks are typically depreciated according to the 5-year MACRS schedule, although you may choose to fully depreciate upfront using Section 179 or Bonus Depreciation.

Trailers

Trailers are typically depreciated according to either a 5-year or 7-year MACRS schedule, depending on the type of trailer you use. Dry vans, reefers, and flatbeds typically qualify as 5-year property, while other trailers are categorized as 7-year.

Alternatively, you may also fully depreciate trailers in Year 1 using either Section 179 or Bonus Depreciation. Bonus Depreciation will likely become a common method for depreciating tractors and trailers now that it has been fully reinstated.

Equipment & Equipment Modifications

Significant equipment purchases and modifications that extend the life or add value to your vehicle are depreciable. These modifications can include auxiliary power units (APUs), custom sleepers, liftgates, headache racks, and specialized loading systems. Section 179 or Bonus Depreciation is often used on these types of improvements.

Technology Systems

The technology that keeps your business moving is also a depreciable asset. Technology can include Electronic Logging Devices (ELDs), GPS navigation units, and any onboard computer or fleet management systems that have a useful life of more than one year. Again, these are usually either Section 179 or Bonus Depreciation assets.

Tools

A simple wrench might be accounted for via a standard deduction, but more specialized and expensive equipment, such as refrigeration units or lift gates, often needs to be depreciated. You might use Section 179 or Bonus Depreciation for investments in equipment and diagnostic tools.

Are Depreciations & Deductions the Same?

Technically no. Depreciation is a type of deduction. Specifically, depreciation is how capital asset costs are deducted over multiple years (unless Section 179 and/or Bonus Depreciation are used). Capital assets include equipment such as trucks, trailers, and others mentioned above.

There are many other types of deductions your business may take. Operating expenses, like fuel, insurance, and maintenance, are also deductions you should be taking. Similarly, any dispatch service fees, parking lot fees, or other miscellaneous business-related expenses are also applicable.

Tips on Getting Depreciation Right

Getting depreciation right begins with maintaining detailed records. Keep all receipts and clearly label which ones are for business versus personal use. Make other notes if you won’t remember in a year’s time.

You should also work with a qualified tax professional who is familiar with the transportation industry and small business taxes. A Certified Public Accountant (CPA) can help you strategically plan equipment purchases to minimize tax liability, review depreciation schedules each year, and correct any previous depreciation errors (Form 3115).

They’ll also show you whether MACRS, Section 179, or Bonus Depreciation is best for each asset. Ensure the professional you use is licensed in the state where you’re located, because not all states follow the IRS’s Section 179 or Bonus Depreciation rules:

• Section 179: California, Arizona, Minnesota, Arkansas, Indiana, Kentucky, Georgia, Florida, New Jersey, Maryland, Washington, D.C., and New Hampshire don’t follow Section 179.
• Bonus Depreciation: Because 100% Bonus Depreciation was recently restored, it’s currently uncertain which states will follow suit with the federal change.

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