Tax and Nontax Benefits of Leasing Equipment
Although, the decision to preserve the Section 179 deduction of $500,000 for 2015 is still making its way through Congress, currently the Section 179 deduction for buying equipment is only $25,000 for the property placed in service in tax years beginning 2015. Therefore, it may be to your advantage to lease rather than purchase.
Tax Advantages to Consider
When leasing equipment under a fair market value lease (or a “true lease”) you can deduct your annual lease payments in full. Rather than purchase equipment that may result in a multiyear depreciation deduction, a three-year lease may provide more valuable tax benefits than equipment that must be depreciated over seven years. Additionally, AMT may limit your depreciation deduction for equipment purchases; however, the AMT doesn’t reduce deductions for leasing equipment.
Nontax Benefits of Leasing
- Less Capital Required– leasing requires a lower upfront cash expenditure than the normal 10% or 20% down payment for purchases. – More cash on hand for cash flow.
- Equipment Changes So Quickly – it often becomes obsolete before the end of the useful life.
- Equipment Usage - if you only need it for a short period of time, you don’t have to recover the cost in a resale
- Acquisition Cost and Timing – some equipment may be more available for leasing than purchasing and at a better price
- Favorable Accounting Procedures - certain leased equipment may not need to appear on your balance sheet; this may help your overall picture with lenders and potential investors.
Leasing isn’t always the best option, rather, buying may be the best option if you get a good deal and you expect to use it for most of its useful life. Congress may also extend the depreciation tax breaks through 2105 which will make ownership even more attractive.