The Core Difference
Equipment financing (a loan) gives you ownership from day one, you're borrowing money to buy the equipment, and once the loan is repaid, the equipment is yours free and clear. Equipment leasing lets you use the equipment for a set period in exchange for monthly payments, with options at the end of the lease term. The right choice depends on how long you'll use the equipment, your tax situation, your cash flow, and how quickly the equipment will depreciate.
Types of Equipment Leases
A Capital Lease (also called a $1 buyout or finance lease) is essentially a loan disguised as a lease, you'll own the equipment at the end for a nominal fee. A Fair Market Value (FMV) Lease lets you return the equipment, renew the lease, or purchase at fair market value at the end. A TRAC Lease (Terminal Rental Adjustment Clause) is specific to vehicles and lets you set an expected residual value upfront. Each has different accounting, tax, and cash flow implications.
Tax Implications
With financing, you own the equipment and can claim depreciation (including Section 179 and bonus depreciation for a potential first-year write-off of the full purchase price). With a true operating lease (FMV), lease payments are typically fully deductible as a business expense but you can't depreciate the asset. Capital leases are treated similarly to purchases for tax purposes. The One Big Beautiful Bill Act made 100% bonus depreciation permanent for equipment placed in service after January 19, 2025, which significantly favors purchasing or capital leases for many businesses.
When to Lease vs. When to Finance
Lease when: the equipment becomes obsolete quickly (technology), you want to preserve cash for other investments, you need to upgrade frequently, or you want lower monthly payments. Finance when: you'll use the equipment for its full useful life, you want to build equity, you want to take advantage of Section 179 depreciation, or the equipment holds its value well (like trucks and heavy equipment). For most trucking and heavy equipment purchases, financing is typically the better long-term financial decision.