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 Thursday, October 30, 2008
Different Kinds of Leases
When considering a lease it is important to know the different lease structures that are available. The two most common lease structures utilized are capital leases and true leases.
A capital lease, also known as a finance lease, has a "bargain purchase option" at the end of the term, such as $1.00 or $101.00 depending on the tax laws in your state. A capital lease is best when the intention is to own the equipment at the end of the term. This structure allows the lessee to depreciate the asset and write off the interest. Capital leases often appeal to companies that prefer to own the equipment but want to preserve their working capital and any existing bank lines.
True leases provide the option to return the equipment to the lessor at the end of the term. A true lease is best for companies that need to regularly upgrade their equipment and is commonly used for technology assets that are subject to rapid obsolescence. A true lease can offer lower monthly payments with "off balance sheet" reporting. These structures are typically best for companies that are interested in minimizing their tax liabilities due to the "line item" deduction of the entire lease payment as an operating expense.
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