The lease-vs-buy decision in equipment financing comes down to four factors: tax position, balance sheet appearance, useful life vs hold period, and total cost of ownership. There is no universal answer; this guide walks through the framework.
Quick decision matrix
| If you… | Lean toward… |
|---|---|
| Want to own the equipment long-term | Buy (loan or $1 buyout) |
| Plan to upgrade every 2-3 years | FMV lease |
| Have Section 179 capacity to use | Buy (depreciable) |
| Want lowest monthly payment | FMV lease |
| Want operating-expense tax treatment | True lease (FMV) |
| Have weak cash flow but strong equipment ROI | Lease (preserves working capital) |
| Are in a fast-depreciating equipment category (computers, mobile devices) | FMV lease |
| Are in a slow-depreciating category (trucks, machinery) | Buy |
Tax treatment differs
Buy (loan or $1 buyout): you own the equipment. You can claim Section 179 (up to $1.22M in 2026) and bonus depreciation (60% of remainder in 2026). After §179 + bonus, the rest depreciates over MACRS recovery period (5-7 years for most equipment).
True lease (FMV): the lessor owns. You deduct lease payments as operating expense as paid. No depreciation. Same total deduction over time, but different timing.
For businesses with profitable years and §179 capacity, buying usually wins. For businesses near breakeven or in startup phase, leasing’s smaller monthly deduction is often a better fit for the income statement.
Cash flow comparison
Example: $100,000 piece of equipment, 60-month term, 10% APR.
- Loan or $1 buyout: Monthly payment ~$2,125. You own at term-end. Total payments ~$127,500.
- FMV lease (20% residual): Monthly payment ~$1,795. Buyout at term-end ~$20,000 (or return). Total if buy ~$127,700; total if return ~$107,700.
FMV lease saves ~$330/month for 60 months ($19,800 of working capital). If you return the equipment at term-end, total cost is lower by $19,800. If you buy out, total cost is roughly identical but cash flow was easier.
Balance sheet impact (ASC 842)
Since ASC 842 (2019/2022), both leases and loans appear on balance sheet for most businesses. The “off-balance-sheet lease” advantage is mostly gone. You should still talk to your CPA about which is reported as interest+depreciation expense vs straight-line lease expense.
Equipment-specific patterns
- Trucks and trailers: typically buy. Equipment holds value, useful life 10+ years.
- Computers and IT: typically FMV lease. Fast obsolescence; you want to upgrade every 3 years.
- Medical imaging (MRI, CT): often FMV lease. Technology refresh cycles, high obsolescence risk.
- Restaurant equipment: typically buy. Long useful life, slow depreciation.
- Construction equipment: typically buy. Strong used-equipment market preserves residual value.
Read this before deciding
Use our lease vs buy calculator to model the specific numbers for your situation. Run the actual cash flow, tax savings, and total cost of ownership. Then talk to your CPA about your tax position.