Vehicle depreciation - how much of the car you actually deduct
A car bought for the business is recorded as an asset, and its cost is spread across years through depreciation. That depreciation then takes a second cut, and what is left of the purchase price is 6.75 percent a year.
Two cuts on the same amount
The first cut is depreciation itself. The depreciation regulations set 15 percent a year of the purchase cost for a private car, a pickup up to three tons and a motorcycle. The rate is uniform and does not depend on the model, the year or how far you drove.
The second cut is the 45 percent rule for a vehicle in mixed use, covered in the vehicle expenses guide. The rule applies to all vehicle costs, and depreciation is one of them.
The two together leave 6.75 percent of the cost per year. That is the number that actually reduces taxable income.
The example in three figures
A car bought for NIS 150,000 generates annual depreciation of NIS 22,500. Of that, 45 percent is recognized, which is NIS 10,125.
NIS 10,125 a year, on a car that cost 150,000. At a marginal rate of 31 percent that saves around NIS 3,139 in tax a year, plus a little in national insurance because taxable income fell. The effect on take-home is visible in the annual net calculator.
The original cost ceiling
Depreciation is calculated up to an original cost ceiling set in the regulations and updated annually. In 2025 it stood at NIS 583,100.
A car bought above the ceiling is depreciated up to the ceiling only, and the excess does not exist for tax purposes. On a car costing a million shekels that erases more than NIS 400,000 of cost from the calculation.
When there is no depreciation at all
On an operating lease the car is not yours. There is no asset in the books, so there is nothing to depreciate. The expense is the monthly payment, recognized at the same 45 percent. On a finance lease or a purchase loan the picture differs, because the car is recorded as an asset, and financing costs join depreciation in the deductible share.
A vehicle with a permitted total weight above 3,500 kilograms falls outside the definition in the vehicle expense regulations. A truck, a heavy commercial vehicle or mobile equipment is deductible in full, depreciation and running costs alike, with no 45 percent cut.
A private car moving into business use
A freelancer who opens a business and starts using a car they already own does not lose the depreciation. The car enters the books at its value on the date it moved into business use, not at the price paid for it five years earlier. From that point it depreciates normally.
The value on the transfer date has to be documented. A price-guide valuation from that date, kept with the rest of your business records, is what holds the deduction up in an audit.
What happens on sale
Selling a business vehicle is reported as a capital gain. Depreciation accumulated over the years comes off the original cost for the gain calculation, and in some cases depreciation that was never allowed as a deduction is taken into account as well.
The calculation rests on dedicated regulations and happens in the annual return, based on the depreciation years actually accumulated. It is a calculation for your accountant. Someone who claimed depreciation for six years and sells in the seventh does not get the same answer as someone who bought two years ago.
Buying a car at year end
Depreciation is the only expense in a business with no payment behind it that year. The money left on the day of purchase, and the recognition is smeared across roughly seven years. In the year of purchase, depreciation is prorated for the part of the year the car was already in the business.
So buying a car in December cuts that year's tax by a few hundred shekels. An ordinary deductible expense comes off in full in the year it was paid.
Common questions
What is the depreciation rate on a vehicle?
15 percent a year of the purchase cost. That is the rate the regulations set for a private car, a pickup up to three tons and a motorcycle, and it is the same regardless of model or mileage.
So 15 percent of the car is deductible?
No. Depreciation is cut a second time by the 45 percent rule that applies to a vehicle in mixed use, so the real deduction is 6.75 percent of the cost per year.
How does that work on a car costing NIS 150,000?
Annual depreciation is NIS 22,500, of which 45 percent is recognized, so NIS 10,125 a year. That is the figure that comes off taxable income, not 150,000 and not 22,500.
Is there depreciation on a lease?
Not on an operating lease. The car is not yours, so there is nothing to depreciate. The expense is the monthly payment itself, recognized at the same 45 percent.
What about a heavy commercial vehicle?
A vehicle with a permitted total weight above 3,500 kilograms falls outside the definition in the regulations, so its running costs and its depreciation are deductible in full.
What happens when I sell the car?
It creates a capital gain event. Accumulated depreciation comes off the original cost for the calculation, including depreciation that was never allowed as a deduction, which is why this is done in the annual return with an accountant rather than alone.