One of the most overlooked benefits of leasing equipment isn’t just operational flexibility—it’s the potential tax savings. When structured correctly, an equipment lease can offer significant deductions, improving your bottom line without tying up cash.
Let’s break down the key tax advantages of equipment leasing and how your business can take full advantage.
What are the tax benefits of equipment leasing?
Leased equipment may qualify for tax deductions under Section 179 or be fully deductible as an operating expense, depending on lease structure.
If your lease qualifies as a capital lease, you may be eligible to deduct the full purchase price of the equipment (up to $1,220,000 in 2024) in the year you place it into service.
Requirements:
You must use the equipment more than 50% for business
Lease must have a $1 buyout or similar ownership structure
Check Section 179 eligibility and limits here (opens in a new tab)
If your lease is structured as an operating lease (you don’t plan to own the equipment), you can typically deduct 100% of your lease payments as a business expense.
Advantages:
Reduces taxable income
Easier monthly cash flow management
Ideal for short-term or fast-depreciating equipment
With an operating lease, there’s no need to track or calculate depreciation—the leasing company retains ownership and handles depreciation reporting.
This simplifies your tax filing and bookkeeping.
Many leases include bundled services like:
Maintenance
Installation
Training
Shipping
If included in your lease, these costs may also be deductible under IRS guidelines.
Pro Tip: Ask your lessor for an itemized breakdown so your accountant can maximize deductions.
In some states, leased equipment is taxed on monthly payments rather than the full purchase price upfront—helping preserve working capital and cash flow.
| Feature | Capital Lease | Operating Lease |
|---|---|---|
| Ownership | Yes (eventual) | No |
| Section 179 Eligible | ✅ Yes | ❌ No |
| Depreciation Deductible | ✅ Yes | ❌ Not needed |
| Lease Payments Deductible | ❌ Partially (interest only) | ✅ Fully deductible |
| Best For | Long-term use & ownership | Short-term flexibility |
✅ Choose the right lease structure – Work with a financing partner who understands tax implications
✅ Consult your accountant – Confirm whether to treat the lease as capital or operating under IRS guidelines
✅ Track payment schedules – Keep clean records of monthly payments and associated expenses
✅ Stay current on Section 179 limits – Annual caps change (e.g., $1,220,000 in 2024)
✅ Bundle strategically – Include services that can be deducted under operating expense rules
Equipment leasing offers more than just flexibility—it’s a legitimate tax strategy. Whether you’re deducting lease payments or taking a Section 179 deduction, the right lease structure can lower your taxable income and improve year-end profitability.
Before entering any lease, ask:
❓ Will this qualify as a capital or operating lease?
❓ How much can I deduct this year?
❓ Should I include maintenance or other services?
Smart leasing can mean smart tax savings—get the structure right from the start.