# FMV Lease vs $1 Buyout Lease

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Last modified: 2026-05-29T19:39:17+00:00
Type: efin_comparison

## Summary

FMV Lease vs $1 Buyout Lease. Side-by-side comparison with cost analysis, tax implications, and when each wins.

## Content

FMV (Fair Market Value) leases and $1 buyout leases are both lease structures, but they handle the end of the lease term completely differently. FMV is a true operating lease; $1 buyout is a finance lease that economically transfers ownership.

Structure comparison

FMV lease$1 buyout lease

End-of-term buyoutFair market value (15-25% residual)$1
Lessor at termOwns until buyoutTransfers ownership at $1
Monthly payment ($100K example, 60mo)~$1,800~$2,125
Tax treatment (IRS)True lease (operating expense)Finance lease (depreciation)
Section 179No (lessor claims)Yes (you claim)
Sales tax timingOn lease paymentsOn full equipment cost upfront (most states)
End-of-term decisionBuy at FMV, return, or upgradeYou own automatically



When FMV wins

Lowest payment: the larger residual means smaller financed amount.
Upgrade-frequently strategy: at term-end, you return the equipment and lease new without re-selling.
Fast-depreciating equipment: computers, mobile devices, MRI machines. Better to let the lessor bear residual risk.
Off-balance-sheet preference (pre-ASC 842): historically operating leases stayed off balance sheet. Now both sit on balance sheet but with different expense patterns.
Cash-flow preservation: smaller payment for the same equipment.


When $1 buyout wins

Own the equipment long-term: guaranteed ownership at term-end for $1.
Section 179 + bonus depreciation: you claim the full equipment cost.
Equipment that holds value: trucks, construction equipment, machinery. The residual is yours.
Predictable buyout: $1 is fixed; FMV is determined at term-end by inspection and market.
Resale plans: if you plan to sell the equipment at term-end, you keep all the upside.


The buyout uncertainty in FMV
FMV buyout is set at term-end. If the equipment's actual market value is below the lessor's residual expectation, the buyout is favorable. If above, less so. Some lessors will negotiate the buyout pre-term-end (called "rollover" or "early-buyout") which can lock the price.

The numbers, simplified
$100,000 equipment, 60-month, 10% APR, 25% tax rate.

$1 buyout total over 5 years: ~$127,500 in payments + $1 buyout = $127,501. Tax savings from §179: $25,000 year 1. Net effective cost: $102,501 over 5 years.
FMV (20% residual) total over 5 years: ~$108,000 in payments + $20,000 buyout (if you buy) or $0 (if you return). Tax savings from operating-expense deduction at 25%: $27,000 over 5 years. Net effective cost: $101,000 over 5 years (with buyout) or $81,000 (without).

The headline payment is smaller on FMV; the long-term math depends on whether you buy out and the residual reality.

See our lease vs buy calculator for your specific scenario.