Every equipment salesman has a tax pitch, and most of them are half true. The lease-vs-loan tax question actually reduces to one distinction: who owns the asset for tax purposes - you or the lessor. Get that straight and the rest is arithmetic.
The three structures, tax-wise
The punchline most miss: a $1-buyout lease and a loan are tax twins. The real fork is FMV leases, where you trade ownership (and Section 179's big year-one deduction) for lower payments and a walk-away option.
| Structure | Tax treatment | You own it? |
|---|---|---|
| Loan / EFA | Section 179 or depreciation + interest deduction | Yes, day one |
| $1 buyout lease | Treated like ownership - 179 eligible | Effectively yes |
| FMV / operating lease | Payments fully deductible as expense | No - option to buy at end |
Worked example: $100K machine, profitable business
Loan or $1-buyout at ~30% combined tax rate: Section 179 lets you deduct the full $100K this year - roughly $30K of tax savings up front, while you pay for the machine over 60 months. FMV lease: deduct ~$21K/year of payments across 5 years - same total deduction territory, spread thin, but with payments maybe 10-15% lower and an exit option. Profitable and keeping the machine? Ownership structures usually win. Cash-tight, tech that ages fast, or unsure you'll keep it? FMV earns its keep.
Confirm with your CPA - specifically
179 limits, bonus depreciation percentages and state conformity shift year to year. The structure question is generic; YOUR deduction is not. One 20-minute CPA call before signing beats a surprise at filing.
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FAQ
Can I take Section 179 on financed equipment?+
Yes - that's the magic. Ownership for tax purposes starts when the equipment is placed in service, even with 95% of the price still owed. You deduct the full price while paying monthly.
What happens at the end of an FMV lease?+
Three doors: return it, buy it at fair market value, or (often) renew/upgrade. The trap is auto-renewal clauses - calendar the notice deadline the day you sign.
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