Lease vs buy equipment — the real cost over the life of the asset

An operating lease is a true rental — you pay to use the equipment for a defined term and return it (or buy out at fair-market-value residual). Lease payments are deducted as operating expense. A capital lease (a.k.a. $1-buyout lease, a.k.a. finance lease) is structured so you own the equipment at end of term for a nominal payment. It's economically equivalent to a loan and is treated for tax purposes as a purchase — eligible for Section 179 expensing and bonus depreciation. Under FASB ASC Topic 842 (effective for private companies in 2022), almost all leases over 12 months must be capitalized on the balance sheet — but the tax treatment still distinguishes between the two structures.

Section 179 allows immediate expensing of qualifying equipment up to $2,560,000 in 2026, phasing out dollar-for-dollar once total equipment purchases exceed $4,090,000 (IRS Rev. Proc. 2025-32 §4.24, indexed from the One Big Beautiful Bill Act's base). Bonus depreciation under IRC §168(k) is 100% for equipment placed in service in 2026 — the OBBBA made 100% bonus depreciation permanent for qualifying property placed in service after January 19, 2025, ending the prior phase-down schedule toward 0% that older guidance still describes. Financing the purchase doesn't reduce either benefit — both are based on the full cost of the asset, not how much cash you put down.

Yes, sharply. The Equipment Leasing and Finance Association tracked $14.3 billion equipment deals in July 2026 alone across its member survey — a new monthly record, 24.5% above the prior all-time high, with the surge driven largely by AI-related capital investment. ELFA's full-year 2026 forecast is $137.3 billion new deals across the industry, which would beat 2024's previous record by 14.0%. That's the demand backdrop behind the lease-vs-buy decision on this page: more businesses are financing equipment right now than at any point in the index's two-decade history, which is exactly when getting the lease-vs-buy math right (not just the monthly payment) matters most.

No. FASB 842 is a financial-reporting (GAAP) standard — it changed how leases appear on the balance sheet, not the tax treatment. For tax, the IRS still distinguishes between true leases and conditional sales (capital leases). An operating lease for GAAP can still be a true lease for tax; a capital lease for GAAP can still be a financed purchase for tax. The categorization differs, so book and tax can diverge — your CPA or tax advisor reconciles.

Operating lease wins when: (1) usage horizon is short — you'll outgrow or obsolete the equipment in 24–36 months; (2) technology turnover is rapid — POS systems, certain medical imaging, certain compute hardware; (3) cash conservation matters more than ownership — startup phase, growth phase; (4) maintenance is bundled with the lease (some operating leases include service); (5) the residual value is genuinely uncertain and you don't want to bear it. Otherwise, buying (loan or capital lease) usually wins on total cost.

Buy wins when: (1) usage horizon is long — 7+ years of expected use; (2) residual value is meaningful — heavy equipment, commercial vehicles, certain industrial machines; (3) you'll use the equipment as collateral for future financing — owned equipment supports a UCC-1 lien; (4) Section 179 and bonus depreciation give you a large first-year deduction that materially helps current-year taxes. The total cash-out math almost always favors buying on long-horizon assets.

End-of-lease fees: documentation fees, dispositional fees, restoration-to-original-condition costs (a real number on commercial vehicles and restaurant equipment). Mileage and usage caps on vehicles and certain machines — overage charges can be material. Maintenance obligations specified in the lease vs the operating-cost reality. Early termination fees: leases are hard to exit before term. Residual / buyout balloon: a 'fair-market-value' buyout can land anywhere from 5% to 30% of original cost. Compare apples-to-apples by demanding the total lease cost in writing — monthly × term + all defined end-of-lease charges.

Yes. SBA 7(a) is commonly used for equipment purchases up to $5M with terms up to 10 years for working capital and equipment (25 years if real estate is included). SBA 504 is purpose-built for fixed assets including equipment — typically structured as 50% bank / 40% CDC (SBA) / 10% borrower equity at favorable long-term fixed rates. Both require personal guarantees from 20%+ owners. SBA 504 is often the lowest all-in cost for equipment purchases in the $500K+ range; SBA 7(a) is faster for smaller deals and better for mixed-purpose financing (equipment + working capital).

A sale-leaseback is a transaction where you sell owned equipment to a financing company and immediately lease it back. Use cases: extracting trapped equity from owned equipment to fund growth or refinance higher-cost debt, or moving an asset off the balance sheet (less relevant post-FASB 842). The downside: you lose ownership, lease payments add up to more than the cash received, and you may owe tax on any gain if the equipment was depreciated below sale price (depreciation recapture). Sale-leaseback often makes sense as a one-time strategic move; rarely a default financing choice.

Some sector-specific federal credits exist: §45L (energy-efficient buildings), §48 (solar / energy property), Investment Tax Credit (ITC) for renewable energy, and various state-level economic development credits. The Inflation Reduction Act expanded several energy-related credits — some apply to equipment used in qualifying business activities. These are highly fact-specific; coordinate with a CPA before assuming a credit applies. The general business credit (Form 3800) consolidates many sector-specific credits; carryback/carryforward rules apply.

Depends on annual mileage and ownership horizon. High-mileage operators (over 25K/yr): buy — lease mileage caps make leasing punitive. Low-mileage owners with frequent vehicle refreshes (sales reps, executive use): lease can win on simplicity. For trade vehicles (box truck, work van, service vehicle) where you'll keep the vehicle 6–10 years: buy almost always wins on total cost. Section 179 and bonus depreciation favor purchases of qualifying heavy SUVs and trucks (over 6,000 lbs GVWR) in the first year.