/ Finance Lease / $1 Buyout
May also be referred to as a nominal or
($1) dollar-buyout lease.
These leases share the advantage of fixed monthly payments
but with the guaranteed option to purchase the equipment for a
nominal price at the conclusion of the lease. With this type of lease there is no
uncertainty about the value of the equipment at the conclusion of the lease as
the buyout terms are generally a part of the initial agreement.
type leasea may not qualify under I.R.S. regulations for
lessee is considered the owner of the equipment (unlike an FMV
lease) and maintains full control of the residual value.
lessee can however claim the benefit of depreciating the equipment.
records the equipment as an asset and the lease payments as liabilities
on their balance sheets.
True Lease or Operating Lease
Also known as fair market value leases. The most notable feature of this type of lease is that its structure
does not contemplate a full payout of the cost of the equipment as is the case
in a "Finance" type lease. Two of the common tests are:
|The term of the lease is generally not
greater than 75% of the equipment's anticipated useful life.|
|The present value of the lease payments
should not exceed 90% of the fair market value of the equipment using the
lessee's incremental cost of borrowing.|
A significant benefit is that the
monthly payments are also less than on a finance type lease (above) or even a bank loan. Typically the lessee either returns
the equipment at the conclusion of the lease or
may be granted the opportunity to purchase the equipment from the lessor for "the fair market value." Payments under this kind of lease structure are treated (by the
rental payments and therefore are 100% tax deductible operating expenses. Also, as rental payments, neither the asset nor its corresponding liability
need to appear on the company's balance
sheet. The lessor retains the right to depreciate the equipment.
End of lease features:
The lessee may have to
option to continue renting the equipment
The lessee may have the option to "re-lease" the equipment
"P.U.T." Option Lease (Purchase Upon
This end-of-lease option establishes a mandatory purchase price,
usually expressed as a percentage, e.g. "a 10% Put." This is a
technique for lowering the lease payments during the lease term without creating
an unknown end-of-lease risk for either the lessor or the lessee. As
with our programs lease payments are fixed.
A TRAC lease is a special type of true lease that is generally
used for "over-the-road" vehicles like trucks, tractors and trailers.
Special provisions of the I.R.S. code allow for pre-determined residual values
(as opposed to "future, fair market values) to be negotiated in advance while
maintaining the "full deductibility" of a true lease.
|This type of lease is generally less
expensive then other leases or conventional bank financing. |
| The lessor would retain the rights to
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