How car depreciation is calculated
Car depreciation is the difference between what you paid and what the car is worth when you sell it. Cars lose a share of their remaining value each year, so the dollar loss is largest at the start and shrinks as the car ages. This car depreciation calculator applies that declining-balance pattern year by year.
AAA's Your Driving Costs study, which follows new vehicles over five years and 15,000 miles a year, puts average depreciation at $4,422 a year in 2026, the single largest cost of owning a car.[1] AAA measures it as the difference between the purchase price and the estimated trade-in value after five years and 75,000 miles.[2] Five years of $4,422 is $22,110, about 56% of the $39,376 weighted average MSRP of the vehicles AAA priced (our arithmetic), and that share sets the calculator's default rate.
Car depreciation rate by year
The table shows what a $40,000 car is worth at the end of each year at three rates: AAA's average, a faster pattern (25% the first year, then 18%), and a slower one (12%, then 10%). Real cars fall somewhere in that range depending on make, mileage and the used-car market.
| Year | Slower | AAA average | Faster |
|---|---|---|---|
| Year 1 | $35,200 | $33,920 | $30,000 |
| Year 2 | $31,680 | $28,764 | $24,600 |
| Year 3 | $28,512 | $24,391 | $20,172 |
| Year 4 | $25,661 | $20,684 | $16,541 |
| Year 5 | $23,095 | $17,540 | $13,564 |
| Year 6 | $20,785 | $14,873 | $11,122 |
| Year 7 | $18,707 | $12,613 | $9,120 |
| Year 8 | $16,836 | $10,695 | $7,479 |
| Year 9 | $15,152 | $9,070 | $6,132 |
| Year 10 | $13,637 | $7,691 | $5,029 |
Two points stand out. First, the dollar loss in year 1 is about $6,080 at the average rate, while year 8 costs $1,917. Second, after about five years the three curves converge in dollars, because there is less value left to lose; that is why a well-kept older car is often the cheapest one to own, as the cost of owning a car calculator shows.
Depreciation per mile
Dividing the value lost by the miles driven gives depreciation per mile, a useful way to compare cars and to see what extra driving costs. In the example, $22,460 over 60,000 miles is 37.4 cents a mile, more than the fuel for most cars: AAA's 2026 study puts the average fuel cost at 17.3 cents a mile. High mileage also lowers resale value directly, so heavy drivers lose value faster than the table suggests.
Used car prices move with the market
Depreciation is not fixed: when used cars are scarce, values hold up, and when supply recovers, they fall faster. The Bureau of Labor Statistics consumer price index for used cars and trucks changed -3.3% in the 12 months to October 2026, while new vehicles changed +0.7%.[3] If you are selling soon, compare current listings for your model with the calculator's estimate.
Depreciating a car for business taxes
Tax depreciation is a different calculation from market depreciation. If you use a car for business and deduct actual expenses instead of the standard mileage rate (72.5 cents a mile for January–June 2026 and 76 cents from July 1[6]), the IRS caps the yearly depreciation on passenger automobiles. For vehicles placed in service in 2026:[4]
| Tax year | With bonus depreciation | Without bonus depreciation |
|---|---|---|
| 1st year | $20,300 | $12,300 |
| 2nd year | $19,800 | $19,800 |
| 3rd year | $11,900 | $11,900 |
| Each later year | $7,160 | $7,160 |
The caps apply to the business-use share of the vehicle. Heavier SUVs, pickups and vans over 6,000 pounds gross vehicle weight are not subject to these passenger-car limits, though the Section 179 deduction for SUVs is capped at $32,000 for 2026.[5] Tax depreciation follows IRS rules, not what the car would sell for; a tax professional can say which method fits.
Depreciation and your loanIf you borrow most of the price, the car can be worth less than you owe for the first years. That gap is negative equity; the car affordability calculator shows how a larger down payment and shorter loan keep you ahead of it.
Lease residuals are a depreciation forecast
A lease's residual value is the lessor's forecast of what the car will be worth at the end of the lease, and the payment is mostly the difference between the price and that forecast. A 36-month lease with a 58% residual assumes the car keeps 58% of its MSRP after three years. Compare that with the table above, or run the numbers in the car lease calculator.
Frequently asked questions
How much does a car depreciate per year?
AAA's average for new vehicles is $4,422 a year over the first five years (2026), about 56% of the price in total, or 15.2% of the remaining value each year.[1]
How do you calculate car depreciation?
Value after k years = price × (1 − rate)k for a constant rate. With a steeper first year: price × (1 − first-year rate) × (1 − later rate)k − 1. Depreciation is the price minus that value.
At what age does a car depreciate the most?
In dollars, the first year. Each later year takes a similar percentage of a smaller value, so the dollar loss shrinks every year.
Does mileage affect depreciation?
Yes. Higher mileage usually lowers resale value. To compare cars that are driven differently, look at depreciation per mile, which this calculator shows.
Sources
- AAA: New Vehicle Ownership Costs Hit $12,863 Annually (Your Driving Costs 2026)
- Your Driving Costs 2026 (brochure)
- Consumer Price Index for All Urban Consumers: new vehicles, used cars and trucks, motor vehicle insurance, maintenance and repair, gasoline (U.S. city average, not seasonally adjusted)
- Rev. Proc. 2026-15: depreciation limits for passenger automobiles placed in service in 2026 (IRB 2026-13)
- Rev. Proc. 2025-32, §4.24: section 179 limit for sport utility vehicles (IRB 2025-45)
- Standard mileage rates (Notice 2026-10; Announcement 2026-11)