Capital/ Finance Leases Or Loans
A Capital Lease or a Loan allows a company to lease the asset for the purposes of owning the equipment. The structure is a lease for a defined period of time with a bargain purchase option at the end of the term. Under this format, the lease term equals or exceeds 75% of the asset’s estimated useful life with Risks & Benefits transferred to the Lessee (the customer). The customer is considered the owner of the equipment and therefore claims any depreciation and interest expense. Once the business, or “customer,” takes ownership of the equipment, it becomes a capital asset and must be claimed on the company’s end-of-year taxes.