# TRAC Lease

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

## Summary

Truck/trailer lease where lessee guarantees residual value. If actual is lower, lessee pays difference.

## Content

TRAC lease stands for Terminal Rental Adjustment Clause lease. It is a specialty lease structure for titled equipment (typically commercial trucks, trailers, and some construction vehicles) where the lessee guarantees the residual value at term-end.
How TRAC works
Lessor and lessee agree at lease signing on a fixed residual value (typically 15-40% of original cost, sometimes higher). The lessee pays lease rentals during the term. At term-end:

Equipment is sold (either to the lessee at the agreed residual, or to a third party)
If sale proceeds equal or exceed the agreed residual, the lessee owes nothing
If sale proceeds fall short of the agreed residual, the lessee pays the shortfall
If sale proceeds exceed the agreed residual, the surplus goes to the lessee (in most TRAC structures)

Why TRAC exists
Standard true leases (like FMV) have residual risk borne by the lessor. The lessor sets a conservative residual to protect themselves. TRAC shifts the residual risk to the lessee, which lets the lessor set a higher, less conservative residual. The result: lower monthly payments than a standard true lease, while preserving operating-expense tax treatment (in most cases).
Tax treatment
TRAC leases were specifically blessed by the IRS for trucking and titled equipment. They are treated as true leases for tax purposes despite the lessee's residual guarantee. Lessee deducts lease payments as operating expense; lessor depreciates.
Where TRAC is common

Class 8 sleeper trucks
Trailers (dry van, reefer, flatbed)
Day cab tractors
Some specialty vehicles (tow trucks, dump trucks)

Trade-offs
Pro: lower monthly payment than standard true lease; better than loan in cash-flow terms; tax-favored.
Con: lessee bears residual risk. If the market drops or the equipment is in poor condition at term-end, the lessee owes the shortfall. Maintenance discipline is critical.