Vehicle Depreciation in 2026: Calculation, Tax Deductions, and Compensation for Damages

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What Is Vehicle Depreciation?

In practice, depreciation is most commonly understood as the gradual loss of value of an asset over time ( typically a car or machine). Think of it this way: you buy a new car for 600,000 crowns. The moment you drive it out of the dealership, you wouldn’t be able to sell it for the same price anymore. Its value automatically decreases, even if you washed it the next day and returned it with a full tank of gas.

We call this natural decline in value depreciation. The reasons for this are, on the one hand, physical wear and tear (the car is used; parts may wear out, worn out, or rust) and, on the other hand, obsolescence —every year, new technologies, more fuel-efficient engines, and higher safety standards emerge, and suddenly your “new” car isn’t such a great deal anymore.

How is a car’s depreciation calculated?

Calculating a car’s depreciation depends on why you need to know it. If you’re interested in the decline in the vehicle’s market value, you compare its original purchase price to its current value. This is primarily influenced by the car’s age, mileage, technical condition, service history, and any previous accidents.

For example, imagine you bought a car for 600,000 CZK, and after three years, its market value is 420,000 CZK. The difference is 180,000 CZK, which corresponds to a 30% decline in value.

However, tax depreciation for a company car or the basic mileage allowance for using a personal car for business purposes is calculated differently. In these cases, the calculation follows statutory rules rather than the actual decline in the vehicle’s market price.

Where do you encounter depreciation in practice?

• In taxes and accounting —business owners and companies can gradually deduct the purchase price of assets (such as cars) from their taxes. They don’t write it off all at once, but “depreciate” it over, say, 5 years. Each year, they deduct a portion of the car’s price as an expense.
• In insurance —if something happens to your car, the insurance company often won’t pay you the full amount, but rather an amount reduced by depreciation—that is, by how much the car has lost value since it was purchased.
• When selling —if you’re selling, say, a laptop, a machine, or a car, the buyer expects a lower price because the item is no longer new. The difference between the purchase price and the selling price is precisely depreciation.
• With loans —if you’re paying off a mortgage or a lease, you’ll hear the term “amortization schedule.” This is a breakdown of how the debt is gradually reduced—part goes toward interest and part toward paying off the principal itself (amortization of the principal).

Let’s take a closer look at some of these situations:

Depreciation of a Company Car

Depreciation for a company car varies depending on whether the vehicle is classified as a business asset of the business owner or not. This distinction affects not only how depreciation is calculated but, above all, the tax implications.

Depreciation of a Car That Is NOT Classified as Business Assets

If you do not classify the car as a business asset, you cannot claim so-called tax depreciation (i.e., deduct the car’s purchase price from your taxes over the years). Instead, you can use the so-called basic reimbursement for vehicle use, which replaces depreciation and is based on a fixed rate per kilometer driven. For example, in 2026, the basic reimbursement is 5.90 Kč/km.

This 5.90 Kč/km is intended to cover the vehicle’s depreciation—that is, wear and tear and loss of value—as well as other minor expenses (such as routine maintenance or tire replacement). You can also add reimbursement for fuel costs to this amount.

Example: You drive 10,000 km per year on business trips in your personal car, which is not classified as a business asset. At a rate of 5.90 CZK/km, the basic reimbursement will amount to 59,000 CZK, which you can claim as a tax-deductible expense provided you meet the legal requirements. You can also add the cost of fuel consumed to this amount.

Be aware, however, of one important exception. If you previously had the car listed as a business asset and subsequently removed it from that classification, you generally can no longer claim the basic mileage allowance. You may only claim expenses for fuel consumed. And if, as a self-employed individual, you use a flat-rate expense allowance based on a percentage of your income, you cannot add any additional reimbursements for car use to that allowance.

Depreciation of a Car That IS Classified as Business Assets

If you classify a car as a business asset (for example, as a self-employed individual keeping tax records or as a company), you can gradually deduct its acquisition cost through tax depreciation. A standard passenger car falls into depreciation group 2, so it is typically depreciated over a period of 5 years. As a general rule, the vehicle’s purchase price must exceed 80,000 CZK for you to be eligible to claim depreciation.

But be careful with more expensive cars. For standard passenger vehicles in category M1, a restriction will apply starting in 2024, under which you can include a maximum of 2 million crowns in your tax deductions through depreciation. So, if you purchase a passenger car for 3 million crowns, for example, you will not be able to deduct the entire purchase price for tax purposes.

Certain zero-emission vehicles, such as electric cars, are exempt from the standard five-year depreciation period. If you meet the legal requirements, you can depreciate their purchase price using an accelerated special depreciation schedule over just 24 months. However, even in this case, you must take into account any limit on tax-deductible depreciation.

You determine the depreciation method yourself: either straight-line (lower depreciation in the first year and equal amounts in subsequent years) or accelerated (higher depreciation in the initial years). The choice of depreciation method is up to you; however, once you select an option, you cannot change it over the years.

Straight-line Depreciation

Straight-line depreciation spreads the depreciation over five years, with an 11% rate applied to the acquisition cost in the first year and a 22.25% annual rate applied in the following four years.

Example: If you purchase a car worth 600,000 Kč, you will deduct 11% of the purchase price in the first year, or 66,000 Kč. In the following four years, you’ll deduct 22.25% each year, which amounts to 133,500 Kč annually. In total, after five years, you’ll have deducted the full amount of 600,000 Kč.

Accelerated Depreciation

Accelerated depreciation is advantageous if you expect higher profits in the early years and want to reduce your tax burden during this period. In the first year, the depreciation is calculated using a coefficient of 5, i.e., one-fifth of the acquisition cost. In subsequent years, depreciation is calculated based on the remaining value using a coefficient of 6.

Example: Once again, let’s use a car worth 600,000 CZK as an example. With accelerated depreciation, in the first year you deduct one-fifth of the car’s price, or 120,000 CZK. In subsequent years, depreciation is calculated based on the car’s residual value. Thus, in the second year, you deduct 192,000 CZK; in the third, 144,000 CZK; in the fourth year 96,000 Kč, and in the fifth year 48,000 Kč. In total, the entire purchase price of 600,000 Kč is deducted, but most of it is deducted during the first three years.

In addition, you can also include the car’s operating costs —such as fuel, insurance, maintenance, or toll stickers—in your tax-deductible expenses, provided they are business-related and meet the legal requirements.

If you are a VAT payer, you may also, under certain conditions, claim a VAT deduction on the purchase of the car and its operating expenses. However, be aware of the restriction that will take effect in 2024. For certain passenger cars, the VAT deduction on the purchase of the vehicle is capped at 420,000 CZK. Additionally, if you use the car not only for business but also for personal purposes, you must adjust the deduction accordingly.

Vehicle Depreciation in Damage Claims

If someone crashes into your car, the insurance company should cover all repair costs. In practice, however, things sometimes turn out differently—especially with older cars. Insurance companies often withhold part of the insurance payout, claiming that replacing parts with new ones has increased the car’s value. In other words, they claim the car is in better condition than before the accident thanks to the new replacement parts, and that you ultimately profited from the accident. They call this depreciation, and because of it, they often deduct a portion of the repair costs from your payout.

But this is nonsense. The claimant does not choose to have the car repaired with new parts; usually, there is simply no other option because parts of the same age are no longer available. Furthermore, even after the car is repaired, it is still worth less than before the accident because it is classified as having been in an accident.

The Constitutional Court has also ruled on this issue, clearly stating that insurance companies have no right to reduce insurance payouts due to depreciation if the repair was carried out appropriately and was the only possible way to get the car back on the road. In other words: if you weren’t at fault for the accident, you shouldn’t have to pay for the repairs out of your own pocket.

Vehicle Depreciation and Insurance Companies: When Can They Reduce Insurance Payouts?

In exceptional cases, a reduction may be justified, for example, if the repair resulted in the car’s value exceeding its original condition. Typically, this could involve replacing significantly worn parts with higher-quality or more expensive parts that were not necessary to restore the vehicle to its original condition. However, the insurance company must provide specific and convincing justification for its decision. It is not enough to simply say, “The car is old, so we’ll deduct 20%.”

An Example from Our Legal Practice

From our legal practice, we know that insurance companies sometimes reduce compensation solely on the basis of the car’s age. However, such an approach may not be justified, especially if the repair merely restores the vehicle to its original condition.

For example, we handled a case involving a client whose insurance company offered to reimburse only 60% of the actual damages following a traffic accident. The insurer justified the reduction in compensation precisely on the grounds of the vehicle’s age. We disagreed with this conclusion, so we submitted an expert opinion and a legal opinion supporting our client’s claim.

The insurance company ultimately paid the full amount of the damage and also reimbursed the costs of renting a replacement vehicle.

So if an insurance company reduces your insurance payout due to depreciation, you do not have to automatically accept its decision. It is important to assess whether the reduction was truly justified and, if necessary, challenge it with appropriate evidence and legal arguments.

Decrease in a Vehicle’s Value After an Accident: Are You Entitled to Compensation?

Even if a car has been professionally repaired after a traffic accident, its market value may be lower than it was before the accident. This is because buyers often prefer vehicles without an accident history. Such a decrease in the vehicle’s value after an accident may constitute additional property damage, for which you may, under certain conditions, seek compensation from the liable party or their insurance company.

Imagine, for example, a car that was worth 400,000 CZK before the accident. Although it was repaired to a high standard, its market value dropped to 370,000 CZK due to its accident history. The difference of 30,000 CZK may constitute a claim for compensation for the vehicle’s diminished value, provided that the decrease is demonstrable, related to the accident, and not already included in another form of compensation.

So, if you’re seeking compensation for damages following a traffic accident, it may not just be a matter of getting reimbursed for the repair costs themselves. It’s also important to assess any potential decrease in the car’s market value.

How Can You Defend Yourself?

If an insurance company seeks to unjustly reduce your insurance payout, you have several options to defend yourself:

Contact the insurance company and ask for an explanation

If the insurance company reduces your compensation on the grounds that there was an “appreciation in the vehicle’s value,” don’t just let it go. Write to them and demand a clear and specific explanation. Ask them to clearly specify which specific replacement parts were considered to have increased the vehicle’s value. They should also provide you with the time and cost details of the repairs—that is, when and at what cost the individual repair tasks were performed.

It is also essential to request a justification for why the insurance company considers the reduction in the insurance payout to be justified—that is, on what grounds it claims that the repair with new parts led to unjust enrichment. Such a justification must be specific and should be based on objective data, not just a general reference to the vehicle’s age.

A written statement carries significant weight in the further pursuit of your claims, so request it emphatically and specify a deadline for a response (e.g., 14 days).

Appeal the Reduction

If the insurance company insists on reducing the payout despite your request, file an appeal (complaint). In your appeal, it is advisable to point out the following facts:

• The repair was performed using new parts because it was not possible to obtain parts corresponding to the vehicle’s wear and tear.
• This is not an improvement to the vehicle, but a restoration to its original condition.
• Even after the repair, the damaged vehicle is harder to sell, and its market value is lower.

Cite case law establishing that the injured party should not bear the costs of repairs caused by another party, even when new parts are used.

File a complaint with the Czech National Bank (ČNB) or the Czech Trade Inspection Authority (ČOI)

If the insurance company does not back down even after you file a complaint, you can contact the Czech National Bank (ČNB), which oversees the activities of insurance companies. Although the CNB cannot order the insurance company to pay you a specific amount, it can review the company’s actions to ensure compliance with legal obligations.

For consumer disputes arising from agreed-upon collision or other non-life insurance policies, you may also utilize out-of-court dispute resolution—provided the legal conditions are met—for example, through the Czech Trade Inspection Authority or the Ombudsman’s Office of the Czech Insurance Association.

If you are seeking compensation from the at-fault party’s mandatory liability insurance and the insurance company refuses to pay the amount you are entitled to, you can pursue your claim in court.

Seek Legal Assistance

If none of the previous steps help, contact Dostupný advokát. An experienced attorney specializing in insurance law will help you draft a complaint and recover the outstanding amount through the courts. If the insurance company reduces the insurance payout by tens of thousands of crowns, it is worth pursuing your rights in court.

Summary

Vehicle depreciation represents a gradual decline in its value, which primarily affects the selling price, business expenses, and compensation for damages in the event of a traffic accident. For business owners, it depends on whether the car is classified as a business asset. If so, tax depreciation may be claimed, generally over a five-year period, provided the legal conditions are met. For a personally owned car that is not classified as a business asset, a basic mileage allowance may be claimed in certain cases; in 2026, this allowance is 5.90 Kč/km. Special rules apply, for example, to more expensive passenger cars and certain zero-emission vehicles.

Depreciation also plays an important role in the settlement of insurance claims. An insurance company cannot automatically reduce the compensation for damages simply because new parts were used to repair an older car. If the repair was necessary and served to restore the vehicle to its original condition, the claimant may be entitled to reimbursement of the full cost of the repair. If an insurance company unjustifiably reduces the payout, it is worth requesting an explanation, documenting the actual amount of the damage, and, if necessary, seeking legal recourse.