How much does a new car depreciate in the first year?

On average, a new car loses about 20% of its value in the first year. Some luxury and high-end vehicles lose even more, while trucks and certain popular models may depreciate only 15%. This first-year drop is the steepest in the car's life.

When does a car stop depreciating?

Cars never truly stop depreciating, but the rate of decline slows significantly after 10 years. Very old cars may stabilize in value, and certain classic or collectible vehicles can actually appreciate over time.

What cars hold their value best?

Toyota, Honda, Subaru, and Porsche consistently top resale value charts. Trucks like the Toyota Tacoma and Jeep Wrangler are known for exceptional value retention, often losing only 30–35% over 5 years.

Does mileage affect depreciation?

Yes, significantly. The average driver puts 12,000–15,000 miles per year on a car. Higher-than-average mileage accelerates depreciation, while lower mileage helps retain value. Each additional mile above average reduces value incrementally.

Is depreciation tax deductible?

For personal vehicles, no. However, if you use your car for business purposes, you can deduct depreciation as a business expense under IRS Section 179 or MACRS depreciation schedules. Consult a tax professional for specifics.

How does depreciation affect my loan?

If your car depreciates faster than you pay down the loan, you end up with negative equity (owing more than the car is worth). This is especially common with low down payments and long loan terms.

Car Depreciation by Year Calculator

See how your car loses value year by year. Calculate depreciation from purchase using typical rates: 20% year 1, then 15%, 10%, and more.

Purchase Price

Years to Show

Value After 5 Years

$18,727.20

5-Year Depreciation

$21,272.80

53.2% of original price

Year	Rate	Year Loss	Vehicle Value	Total Lost
1	20%	$8,000.00	$32,000.00	$8,000.00 (20.0%)
2	15%	$4,800.00	$27,200.00	$12,800.00 (32.0%)
3	15%	$4,080.00	$23,120.00	$16,880.00 (42.2%)
4	10%	$2,312.00	$20,808.00	$19,192.00 (48.0%)
5	10%	$2,080.80	$18,727.20	$21,272.80 (53.2%)
6	7%	$1,310.90	$17,416.30	$22,583.70 (56.5%)
7	7%	$1,219.14	$16,197.16	$23,802.84 (59.5%)
8	7%	$1,133.80	$15,063.35	$24,936.65 (62.3%)
9	5%	$753.17	$14,310.19	$25,689.81 (64.2%)
10	5%	$715.51	$13,594.68	$26,405.32 (66.0%)

Planning notes, formulas, and examples

About the Car Depreciation by Year Calculator

A new car loses a significant portion of its value the moment you drive it off the lot, and continues to depreciate every year after that. Understanding how depreciation works year by year is crucial for making smart buying, selling, and trade-in decisions.

This calculator applies typical industry depreciation rates to show your car's estimated value at the end of each year. The standard pattern is roughly 20% depreciation in year 1, 15% in years 2 and 3, 10% in years 4 and 5, and 5–7% per year thereafter.

Depreciation is the single largest cost of car ownership for new vehicles. On a $40,000 car, you can expect to lose $15,000–$20,000 in value over the first three years alone. This calculator makes that invisible cost visible so you can factor it into your total cost of ownership.

When This Page Helps

Depreciation is often the hidden cost that catches car buyers off guard. Knowing the year-by-year value decline helps you time your purchase and sale optimally. For example, buying a 2–3 year old car lets someone else absorb the steepest depreciation, giving you far better value per dollar.

How to Use the Inputs

Enter the original purchase price (MSRP or actual purchase price).
Optionally adjust the depreciation rates for each year.
Review the estimated value and total depreciation for each year.
Compare years to find the optimal buying or selling window.
Use the data to estimate trade-in timing.

Formula used

Year N Value = Year (N−1) Value × (1 − Depreciation Rate for Year N)

Typical rates: Year 1: 20%, Year 2: 15%, Year 3: 15%, Year 4: 10%, Year 5: 10%, Years 6+: 7%

Example Calculation

Result: Worth $19,278 after 5 years

A $40,000 car depreciates to $32,000 after year 1 (20% loss), $27,200 after year 2 (15%), $23,120 after year 3 (15%), $20,808 after year 4 (10%), and $18,727 after year 5 (10%). Total 5-year depreciation is $21,273, or 53% of the original price.

Tips & Best Practices

Buying a 2–3 year old car avoids the steepest depreciation period and saves thousands.
Some brands (Toyota, Honda, Lexus) hold their value better than average.
Trucks and SUVs tend to depreciate less than sedans and luxury vehicles.
Low mileage and good maintenance records slow depreciation.
Popular colors (white, black, silver) retain value slightly better than unusual colors.
Keep maintenance records and service history to maximize resale value.

Understanding Car Depreciation Curves

Depreciation follows a predictable curve for most vehicles. The steepest decline occurs in the first year (15–25%), with continued rapid decline through year 3. After year 5, depreciation slows to 5–7% annually as the car approaches its minimum residual value.

Factors That Accelerate Depreciation

Luxury vehicles, rapidly changing technology (early EVs), unpopular colors, high mileage, accident history, and discontinued models all accelerate depreciation. A luxury sedan can lose 60%+ of its value in 5 years.

Strategies to Beat Depreciation

Buy vehicles 2–3 years old to avoid the steepest curve. Choose brands with strong resale value. Keep mileage reasonable and maintain detailed service records. Sell privately rather than trading in to get closer to fair market value.

Sources & Methodology

Last updated: February 8, 2026

Frequently Asked Questions

On average, a new car loses about 20% of its value in the first year. Some luxury and high-end vehicles lose even more, while trucks and certain popular models may depreciate only 15%. This first-year drop is the steepest in the car's life.