# True Lease

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

## Summary

A lease structured as a true rental for tax purposes, with lessor retaining depreciation benefits.

## Content

A true lease (also called a tax lease or operating lease for tax purposes) is a lease structure where the lessor retains ownership of the equipment and the lessee uses it for the lease term. The lessor claims depreciation and tax benefits; the lessee deducts lease payments as a current operating expense.
True lease vs finance lease (tax distinction)
The IRS uses several tests to determine if a transaction is a true lease or a disguised purchase (finance lease):

The lessor must retain meaningful ownership risk (residual must be significant).
The lease term cannot exceed 80% of the equipment's useful life.
The buyout option cannot be at a "bargain" price (i.e., $1 fails the test).
The equipment must have a real fair-market-value buyout, not a pre-set bargain residual.

FMV leases are typically true leases
An FMV lease (15-25% residual, buyout at then-current FMV) usually qualifies as a true lease for tax purposes. A $1 buyout lease is a finance lease for tax purposes (treated as a purchase).
When a true lease makes sense

You want operating-expense tax treatment (vs depreciation)
You want to upgrade frequently and not own equipment at term-end
You want the lowest monthly payment
Section 179 capacity is already maxed (true-lease payments are deducted as operating expense regardless of §179)

Not tax advice. Consult your CPA.