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Leasing FAQs

 

Why is leasing a better option? I like to own my equipment.

Use of equipment - not ownership produces profit. When you purchase and finance equipment, you do not really own it until you pay off the financing. Leases will generally require less cash outlay during the financing term than a loan. As such, you preserve cash capital for other uses. Depending on the type of lease you choose, at the end of lease term you have the flexibility to purchase the equipment, renew the lease or upgrade to newer equipment.

I am concerned about the Fair Market Value purchase price at the end of lease term. I do not want to pay for the equipment twice.

A properly structured true tax lease only requires that you pay for a portion of the equipment cost during the lease term. At the end of the lease, you have the option of purchasing the equipment. So while you may make two types of payments, you are not paying for the equipment twice. In a true tax lease, you enjoy the benefits of deduction of the lease payments. The IRS has guidelines for a lease to qualify as a true tax lease - one being that there can be no guarantee on the fair market value purchase option. Nonetheless, we want to be fair with you and we want to do repeat business with you, so our responsibility is to properly structure the lease whereby the portion of the equipment cost that is paid for during the term of the lease is in line with the anticipated fair market value at the end of the lease.

Who pays taxes on a lease?

The lessee is responsible for paying all taxes - sales, use and property. The lessee should look at the obligation to pay the taxes as being the same as if they owned the equipment. If the lessor took on the obligation to pay taxes, the rentals would have to be higher.

Is the lease cancelable?

No. The lease is a non-cancelable contract. The structure of a lease is such that the lease needs to be paid over the full term for the lessor's investment in the lease to be protected. We can, however, be flexible as financial needs change or equipment upgrades are required.

Can I deduct the lease payments as an expense item?

It depends on the type of lease structure you choose. In a properly structured true tax lease, you should be able to deduct lease payments (which is generally more advantageous) rather than depreciate the asset cost. If your choice is a Finance Lease, you generally will not be able to deduct the payments - but you can take the depreciation and interest cost deduction.