Types of Leases

END OF LEASE OPTIONS

  • $1.00 Out: This option allows you full ownership of the equipment at the end of the lease term.
  • 10% PUT: This structure offers a slightly lower monthly payment in exchange for a fixed purchase option. At the end of the lease term you purchase the equipment at 10% of its original cost.
  • Fair Market Value (FMV): Offers the lowest monthly payment. At the end of the lease term, you can purchase the equipment at the then fair market value of the equipment. 

 

TYPES OF EQUIPMENT LEASES

TRUE LEASES

Referred to as a "tax" or "FMV" leases, these are designed to meet IRS tax guideline definitions of a lease and may offer you the fastest way to "write-off" the use of new equipment. A true lease can be treated as an operating expense for tax purposes and either as a capital expense or possibly an operating expense for accounting purposes.

 

CAPITAL OR FINANCE LEASE

This type of lease transfers ownership for a token sum at the end of the lease. Consider this lease choice if you intend to own the equipment at the end of the lease, or if the asset has an expected long-use-life. A capital/finance lease provides the benefits of ownership with the lessee taking depreciation and interest expenses related to the equipment. At the end of the term, full ownership of the equipment transfers to the lessee at a cost of typically $1.00

 

OPERATING LEASES

This type of lease can be designed to meet accounting standards for off-balance sheet financing according to FASB (Financial Accounting Standards Board) rules, (to be determined by lessee’s accountant).

 

SALE/LEASEBACKS

In this type of lease, a business that has already purchased equipment sells it to the leasing company, which takes ownership of the equipment and then leases it back to the business. It's an effective way to free up working capital which may be tied up in fixed assets.

 

SYNTHETIC LEASE

A synthetic lease is basically a financing structured to be treated as a lease for accounting purposes, but as a loan for tax purposes. The structure is used by corporations that are seeking off-balance sheet reporting of their asset based financing, and that can efficiently use the tax benefits of owning the financed asset.