Methodology · Overview
Depreciation Methodology
Reviewed by Byron Malone · Last reviewed .
Primary sources
Vehicle depreciation data is sourced from NADA Used Vehicle Guide (dealer wholesale pricing) and Kelley Blue Book private-party values. Both are updated monthly and reflect actual auction transaction data. We use the NADA wholesale lane as the floor and KBB private-party as the ceiling for the depreciation range.
For business/tax depreciation (IRS MACRS): passenger automobiles are 5-year MACRS property (200% declining balance switching to straight-line). Luxury auto limits under IRC §179 and §168(k) cap first-year depreciation — IRS Rev. Proc. 2024-21 publishes the current limits.
Depreciation curve parameters
We parameterize depreciation curves by vehicle segment (economy, mainstream, luxury, truck, SUV, EV) using 5-year historical NADA data. Curve fitting uses a two-parameter exponential: value_year_n = MSRP × (1 - d1) × (1 - d2)^(n-1), where d1 is the first-year drop rate and d2 is the steady-state annual rate. Segment parameters are recalibrated annually.
Electric vehicles show different curves — initial depreciation was steep (2020-2022) but has moderated as EV supply/demand stabilized. We maintain a separate EV curve updated semi-annually.
IRS luxury limits
IRC §179 and §168(k) bonus depreciation are limited for passenger automobiles. The 2024 limits (per Rev. Proc. 2024-21): first year $12,400 (or $20,400 with 60% bonus), year 2 $19,800, year 3 $11,900, year 4+ $7,160. We compute both book depreciation (for financial planning) and tax depreciation (for after-tax cost analysis) separately.
Limitations
Depreciation curves are averages. Limited-production vehicles, collector cars, and high-demand trim levels can hold or gain value. Auction prices fluctuate with fuel prices and economic cycles. This model is appropriate for mainstream fleet planning, not rare-vehicle valuation.
Update protocol
This category is reviewed quarterly. Immediate updates are triggered by changes to the primary source documents listed in the citations above — rate table revisions, new agency guidance, or regulatory amendments.
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