Fletch’s Mailbag – a Lease Question

By | April 10, 2023

Got an email the other day, and thought I’d share it with you.


Section 179 is a stimulus for the economy.

I’ve been reading your thoughts about rates but I’ve been holding off getting new gear because I was too scared to borrow when rates were rising. I clearly should have a year ago but that’s hindsight. But today even though I really need some new machinery I’m still hesitant to commit to a long-term loan because rates could start falling. A friend of mine suggested I lease but I’m hesitant there too. Can you talk me into it?

First of all, smart move in asking The Lease Guy to talk to you about a Lease!

But yes I do understand your dilemma and it’s not uncommon. For people who have held off buying equipment the past year, they are almost to the point where they feel like they must stay the course.  

I will say I don’t think rates are going to lower, so you’re probably safe in just financing what you need. But you asked me to talk you into a lease, so here goes:

Get an FMV Lease, which stands for “Fair Market Value” lease. Take it out for 24 to 36 months. This means you aren’t locked in as long as a traditional loan, but most importantly, it gets you the equipment you need right now. And at the end of the lease, you have the option to buy the equipment at the fair market value. If rates are lower and you like what you have, go ahead and buy it. If neither of those things are true, hey, lease another. 

Now, because an FMV lease might be an operating lease, it could be structured so it isn’t on your books as an asset, meaning you can’t take a Section 179 Deduction on it. However, as it IS an operating expense, you can deduct the lease payments on your taxes. While it’s not as big as Section 179, it’s still pretty attractive.

Plus, with the FMV lease, you’re really only paying for the portion of the equipment’s life you are using, which means your payments are going to be pretty manageable.

Lastly, whatever your feelings are, it’s never a good idea to “need” new machinery or equipment, but not get it. It’s hard to competitively operate that way. So if the lease gets you the equipment now, and you feel good about the financials, there’s almost no downside.

Hope that helps! 

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