GENERAL FUNDING CORPORATION
YOUR EQUIPMENT LEASING
SPECIALIST
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| Types of Leases |
| IRS Section 179 |
Finance Lease
A finance lease is a full-payout agreement. You
are responsible for maintenance, taxes and insurance. The benefit of this
lease is that it takes advantage of IRS section 179.
$1.00 buyout lease. Allows you to own the equipment at the end of the term of the lease.
Example: The equipment is installed in 2001 or 2002 and the cost is $35,000. Using IRS section 179 and assuming a 33% tax bracket, your tax savings would be $24,000x.33=$7,920 plus the depreciation value on the remaining $11,000.
Tax Lease/True Lease
For tax leases or true leases, the lessor retains
ownership and the lessee may be allowed to claim the entire amount of
the monthly investment as a tax deduction. Many rental contracts qualify
as a true lease.
10% Purchase Option Lease. Allows you to either purchase the equipment at the end of the term for 10% of the original cost of the equipment, or return the equipment to the finance company.
Fair Market Value Lease (FMV). Provides the lowest monthly payment. When the term is completed, you can either purchase the equipment for the fair market value, or return the equipment to the finance company.
Example: Monthly investment is $1,000. Term is 36 months. Assuming a 33% tax bracket, your monthly tax savings would be $1,000x.33=$333.00. Total tax savings over the term of the contract would be $11,988.
Please contact us for more detailed information.
Under IRS section 179, equipment purchases up to the amount shown below, can be expensed (deducted from taxable income) for a certain year if installed by December 31st of that year. Finance leases qualify for this deduction in their year of inception. Any excess above the expensed amount can be depreciated over 5 to 7 years depending on the equipment type.
The maximum amount of asset cost that can be expensed by year is:For example, if you purchase or lease a piece of equipment for $25,000 and install it in 2002, you are eligible to take a $24,000 tax deduction in the respective year. The remaining $1,000 can be depreciated over the life of the asset.
$24,000 for 2001 and 2002
$25,000 for 2003 and each year afterwards
1208 ELECTION TO EXPENSE
Certain Depreciable Business Assets. An expense deduction is provided for tax payers (other than estates, trusts or certain non-corporate lessors) who elect to treat the cost of qualifying property, called sec.179 property, as an expense rather than a capital expenditure. The election, which is made on form 4562, is to be attached to the taxpayer's original return (including a late filed original return) or on an amended return filed by the due date of the original return ( including extensions) for the year the property is placed in service, and may not be revoked without IRS consent [94FED,12,120]. Employers may make such election on form 2106.
For 2001 and 2002, the maximum Code Sec 179 deduction is $24,000. The $24,000 ceiling is reduced by the excess cost of qualified property over $200,000, placed in service during the tax year.
The total cost of property that may be expensed for any tax year cannot exceed the total amount of taxable income (determined after application of the investment limitation) derived from the active conduct of any trade or business during the tax year. Costs disallowed under this rule may be carried forward an unlimited number of years, subject to the ceiling amount for each year. To qualify as Code Sec.179 property, the property must be Code Sec.1245 property depreciable under Code Sec.168, and property that is acquired by purchase for use in the active conduct of a trade or business.
An enterprise zoned business (Code Sec.1397B) is entitled
to an increased Code Sec.179 deduction. The standard $24,000 annual limitation
is increased by the lesser of
(1) $20,000, or (2) the cost of section 179 property which is qualified
zone property placed in the service year.
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