Understanding the Tax Lease Rules

The True Lease

If the tax attributes discussed in Chapter 11 for a lease are important to a product vendor, as a lessor, then it is important that the contract in fact qualify as a true lease for federal income tax purposes. And, if a lease qualifies as a true lease for tax purposes, the lessee customer can deduct its lease payment as an expense for income tax purposes. If a lease does not qualify as a true lease for income tax purposes, the lessee is deemed to be the equipment owner for income tax purposes (and can claim the equipment ownership tax benefits), the lessor cannot claim the equipment ownership tax benefits, and the lessee cannot deduct the lease payments as a rent expense.

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