Equipment Financing vs Leasing

Over the full life of an asset you'll keep using, financing is almost always cheaper than an FMV lease — you stop paying when the loan ends, and you own the residual. Over a shorter window where you'll dispose of the equipment when the contract ends, an FMV lease is usually cheaper because you only pay for the depreciation you actually used, not the full asset value. The decision isn't financing vs leasing in the abstract — it's how long you'll actually use this specific piece of equipment relative to its useful life. If your usage period exceeds roughly 60% to 70% of the asset's useful life, finance. If less, lease.

A $1 buyout lease (sometimes called a capital lease or finance lease) is functionally a loan in lease clothing. You make payments for the term, then buy the equipment for $1 at the end. It is treated as a purchase for tax purposes, qualifies for Section 179 and bonus depreciation, and shows up as owned equipment on your balance sheet. An FMV (fair market value) lease is a true operating lease. You make rental payments for the term, then choose to return, renew, or buy at the equipment's then-current market price. The lease payments are fully deductible as operating expense in the year paid, but you can't take Section 179 on equipment you don't own.

Only on a $1 buyout lease or other capital lease that the IRS treats as a purchase. True operating leases — including FMV leases — do not qualify, because Section 179 requires that you actually own the asset placed in service. The trade-off is that the operating-lease payments themselves are fully deductible as a current operating expense, which often delivers a smoother tax outcome over the contract life even if it's less dramatic in year one.

It depends on current federal law, which has been in flux. Bonus depreciation under IRC §168(k) was originally on a phaseout schedule under the 2017 Tax Cuts and Jobs Act — 100% through 2022, dropping 20 percentage points each year toward 0% in 2027 — but Congress has revisited those percentages multiple times. Whatever the current rate, bonus depreciation typically stacks on top of Section 179, which has its own annual cap (roughly $1.25 million in recent years, inflation-adjusted). The combined Section 179 plus bonus depreciation deduction is the historical tax case for buying instead of leasing. Confirm the exact 2026 percentages and caps with a tax professional before using them in your decision math — the wrong assumption can shift the breakeven by tens of thousands of dollars on a six-figure equipment purchase.

Most equipment lessors approve at FICO 575 and above for standard equipment up to $250,000, with limited or no time-in-business requirement at the smaller end. Larger ticket sizes ($250K+) typically require 620+ and at least 12 months in business. Application-only programs that skip full underwriting are available up to roughly $150,000 to $250,000. Because the lessor retains ownership of the equipment, the credit thresholds for leasing tend to run 25 to 50 points lower than equivalent equipment financing.

Finance, in most cases. Commercial trucks have long useful lives (8 to 12 years for class 8 tractors with proper maintenance), strong residual values, and the IRS depreciation schedule rewards ownership. The standard play is a 60 or 72 month loan, claim Section 179 in year one if you have the income, then run the truck for another 3 to 5 years on minimal payment obligation. Lease a truck only if you genuinely intend to swap it inside 36 months — usually because you're testing a new route, a new owner-operator model, or a new spec — and want the optionality to walk away.

Materially, yes. ASC 842 (effective for private companies in 2022) requires nearly all leases over 12 months to be capitalized on the balance sheet as a right-of-use asset with a corresponding lease liability. The old off-balance-sheet financing case for leasing — that operating leases didn't show up as debt — is mostly dead. That doesn't change the cash-flow or tax case for leasing, but it does mean lenders looking at your balance sheet for the next loan will see the lease obligation. If you were leasing primarily to keep debt invisible, that strategy no longer works.