What is Depreciation? A Simple Guide for Car Entrepreneurs
Finance
What is Depreciation? A Simple Guide for Car Entrepreneurs
If you're starting a car-sharing business, flipping vehicles, or investing in a car-based side hustle, you’ve likely come across the term depreciation. But what is depreciation, really - and why does it matter so much when it comes to cars and business?
In this guide, we’ll break it down in simple terms so you can make smarter buying decisions, save on taxes, and build a more profitable automotive business.
What Is Depreciation?
Depreciation is the loss of value an asset experiences over time.
In the automotive world, this usually means your car becomes worth less the longer you own it. For example, a brand-new car purchased for $30,000 might only be worth $20,000 a few years later. That $10,000 drop is depreciation.
Below is a graph of what your standard depreciation can look like
Why Does Car Depreciation Happen?
Cars depreciate for a number of reasons, including:
- Wear and tear – Normal use takes a toll over time.
- Mileage – The more you drive, the more value your car loses.
- Age – Newer models tend to hold more value than older ones.
- Market trends – Supply, demand, and brand perception all affect resale value.
- Technology – New features can make older models seem outdated.
Understanding these factors is essential when buying, renting, or flipping cars as part of your business.
How Depreciation Affects Car-Based Businesses
Whether you’re launching a car-sharing business on Turo, flipping cars for profit, or building a rental fleet, depreciation plays a huge role in your bottom line.
Here’s how:
- Profit margins: Buying a car that depreciates quickly can eat into your profits.
- Buying strategy: Understanding depreciation helps you spot deals and avoid overpaying.
- Resale timing: Knowing when to sell helps you minimize losses.
- Tax benefits: If your vehicle is used for business, you may be able to deduct depreciation on your taxes - lowering your overall tax liability.
Can You Avoid Depreciation?
Avoiding depreciation all comes down to buying the right car at the right price.
When buying a new car, it is almost impossible to avoid depreciation entirely, unless there are unique market conditions or you’re purchasing a one-of-a-kind vehicle.
However, with used vehicles, you absolutely can buy the right car at the right price in order to limit or, in some cases, eliminate depreciation. This all comes down to buying Below Market Value.
While there are many ways to determine what below market value is, a few tried and true methods is simply market research, Cars.com, Car Gurus Used Vehicle Value Index, or Kelly Blue Book
Using Depreciation to Your Advantage
Depreciation isn’t always a bad thing - especially when it comes to your taxes.
If you're using your car as part of a business (like flipping or car sharing), you may be able to deduct depreciation on your tax return. This can result in thousands of dollars in savings each year, depending on how the vehicle is used and how your business is structured.
Need help understanding how this works? Our Car Sharing Course, Car Flipping Course, and Car Buying Course walk you through all of this step-by-step.
Why Depreciation Matters
If you're building a business around vehicles, understanding car depreciation is essential. It impacts how much you pay, how much you keep, and how successful your business becomes over time.
Whether you're new to car-based income or scaling a fleet, mastering depreciation can save you money - and set you up for long-term success.
Now that you know what depreciation is, you’ve learned the first pillar in buying cars with limited to no loss in value. More on that later.
Ready to Learn More?
Explore our step-by-step courses, free tools, and expert strategies to help you launch and grow a profitable car-based business - from your first vehicle to a full-fledged fleet.
