Different types of equipment leases.

CAPITAL LEASE OR OPERATING LEASE

Equipment leases usually fall under two general categories: operating & capital leases. In an operating lease, the lessor retains ownership of the equipment and all the attending obligations. This is best for leasing equipment with a limited life span you will want to replace.

Conversely, with a capital lease you are all in. You are managing the asset, paying the taxes and insurance. This works best when you want own the equipment when the lease
ends.

TYPES OF LEASES

• $1 BUYOUT LEASE
  
  With this type of capital equipment lease, you make fixed monthly payments and can buy equipment at the end of the lease for just $1.
  
  
• FAIR MARKET LEASE
  
  The (FMV) lease is an operating lease. It will not appear on your balance sheet. You don’t enjoy the benefits nor carry the burden of ownership. The monthly payments, however, are deductible as a business expense (rent) under the IRS regulations.
  
  
• 10% PUT LEASE
  
  A 10% purchase upon termination (PUT) lease is the same as the 10%purchase option lease, with one big difference: The 10% at the end of the term is NOT an alternative. You MUST buy the equipment for 10% of its original value at the end of the term.

• TRAC LEASE
  
  A terminal rental adjustment clause (TRAC) lease is used for leasing heavy vehicles such as trucks, tractors, and trailers. It is a tax oriented lease. It can work like a PUT lease or an FMV lease.

Always explore the economic impact of of any equipment to your bottom line.