Benefits

• When you take out a capital lease, you are able to benefit the most from federal tax benefits. Under Section 179 of the Internal Revenue Code of the United States, a company with a capital lease can write off up to $500,000 worth of equipment. Types of capital leases include a $1 buy-out lease or a 10 percent "purchase upon termination" lease. You take over ownership of the equipment at the end of the capital lease agreement.
  
  

Significance

• If you have a true lease, you will not get the tax benefits of ownership. The lessor of the equipment is considered the true owner, even if you have the equipment in your possession. The lessor receives the tax benefits of the equipment including any depreciation deductions and tax credits. The benefit of a true lease vs. a capital lease is that your monthly payments are likely to be lower.
  
  

Features

• If the Internal Revenue Service determines your lease contract is actually a sale, you’ll be determined the owner of the equipment over the lessor. This occurs if the equipment is worthless by the end of the lease terms or you are giving a buyout option. If a portion of the lease is used to pay interest charges, you are also assumed to be the owner by the IRS. Also, you are considered the owner if you assume all risks of loss and damage while the equipment is in your possession.
  
  

Considerations

• Even if you take out a true lease on equipment, you will still be able to deduct certain costs from your taxes. Instead of claiming depreciation on the equipment you are leasing, you can deduct your lease payments as an operating expense when you file your federal tax return.