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The 2018 Tax Advantages of a Capital Lease

Section 179 Changes Encourage Small Business Owners to Invest in Their Businesses Sooner Versus Later

Changes in Section 179 of the Internal Revenue Service (IRS) tax code take effect for the 2018 tax year. These changes are anticipated to benefit the bottom lines of those who can now deduct the full amount of equipment financed through a capital lease in the tax year it is placed into service compared to depreciating its value over several years.

Under Section 179, there are requirements that must be met in order to deduct equipment’s full purchase price from your gross income in 2018.

  • The equipment must be used more than 50 percent for business.
  • The capital lease must meet what the IRS considers a capital lease for tax purposes, falling under these four criteria:
  1. Ownership of the leased equipment transfers from the lessor to the lessee at the end of the lease.
  2. There is an option at the conclusion of the lease to buy the leased equipment below its fair market value on the date of the lease’s termination.
  3. The term of the lease is in excess of 75 percent of the useful life of the leased property.
  4. The net present value of future lease payments exceeds 90 percent of the fair market value of the leased property at the start of the lease.
  • If a lease does not meet the criteria of a capital lease, the IRS treats it as an operating lease. The lease payments are considered operating expenses and recorded on your Profit & Loss statement when paid or incurred.

If your lease meets the requirements of the IRS’s capital lease definition, now what? You can deduct the full purchase price in the year it’s placed into service. In many cases, the tax savings from this year-one deduction will boost your bank account balance more so than if you hadn’t financed the equipment in the first place. Meaning the amount you save in taxes can exceed the amount you spend on lease payments.

An example of how this bottom-line friendly deduction plays out in reality:

  Equipment cost: $400,000
  Section 179 deduction: $400,000
  Adjusted basis: $0
  1st year depreciation: $0
  (Assumes double declining ½ year convention)
  Final adjusted basis: $0
  Total 1st year deduction: $400,000
  (Assumes 35% tax bracket)  
  Equipment cost after savings: $260,000
  Percentage discount due to tax savings: 35%

There are a few limits…

The amount that can be written off is $1 million in 2018. On purchases over $2.5 million, the Section 179 deductions decrease dollar for dollar. After the Section 179 benefits are exhausted, bonus depreciation of 100 percent can now be taken until 2022 on the remaining amount of equipment placed into service.

Calculate your tax savings based on your equipment cost here.
Visit section179.org to learn more about the Section 179 deduction.

Bottom line: The specific wording and terms of your lease contract could mean the difference between capitalizing an asset or taking a direct deduction for lease payments. Therefore, determining the classification (capital or operating) of a lease before the lease is signed can be a crucial tax planning tool and help you generate maximum tax savings.

If the time is right for you to invest in equipment to grow your business and reap maximum tax savings, talk to us at Global Financial & Leasing Services (GFLS).

People Are Talking . . .

SS, Medical Vendor

I certainly appreciate all the effort and hard work that you put into our customers. Your dynamics show us even when the financial situations are shaky that you still come through with positive outcome. Thank you so much for your hard work!
Global Financial and Leasing Client Testimonials
2019-03-20T07:32:54-07:00
I certainly appreciate all the effort and hard work that you put into our customers. Your dynamics show us even when the financial situations are shaky that you still come through with positive outcome. Thank you so much for your hard work!

President, Plumbing Company

Just wanted to thank you again! I just picked up five new vehicles from a lease I acquired from your friend! I am so excited! Again I cannot thank you enough for all that you have done for me!
Global Financial and Leasing Client Testimonials
2019-03-20T07:37:24-07:00
Just wanted to thank you again! I just picked up five new vehicles from a lease I acquired from your friend! I am so excited! Again I cannot thank you enough for all that you have done for me!

President, Plumbing Company

Just wanted to thank you again! I just picked up five new vehicles from a lease I acquired from your friend! I am so excited! Again I cannot thank you enough for all that you have done for me!
Global Financial and Leasing Client Testimonials
2019-03-20T07:37:57-07:00
Just wanted to thank you again! I just picked up five new vehicles from a lease I acquired from your friend! I am so excited! Again I cannot thank you enough for all that you have done for me!

J, Medical Vendor

It was the best quarter in my 4+ years at XXX!! You guys were a BIG part of it!! Thank You!!!
Global Financial and Leasing Client Testimonials
2019-03-20T07:38:11-07:00
It was the best quarter in my 4+ years at XXX!! You guys were a BIG part of it!! Thank You!!!

R. Morris, CFO & Treasurer SerenaGroup, Inc.

Global provided our company with financing resources when every other firm said no. Both Jim and Judi Jenks have been supportive beyond any experience I’ve had with other financing firms, their professionalism and “going the extra mile” for their client was the norm, not the exception. I highly recommend Global for your financing needs as you will be dealing with people who truly practice what they preach.
Global Financial and Leasing Client Testimonials
2019-03-20T07:38:25-07:00
Global provided our company with financing resources when every other firm said no. Both Jim and Judi Jenks have been supportive beyond any experience I’ve had with other financing firms, their professionalism and “going the extra mile” for their client was the norm, not the exception. I highly recommend Global for your financing needs as you will be dealing with people who truly practice what they preach.

M.C., President Wound Care Management Company

GFRS has allowed our business the growth we needed and given us an exceptional partner we can count on. Other leasing firms were merely interested in looking for certain numbers to meet in the short term. J.D. Jenks, CEO, understood our business model, why we needed what we needed.
Global Financial and Leasing Client Testimonials
2019-03-20T07:38:42-07:00
GFRS has allowed our business the growth we needed and given us an exceptional partner we can count on. Other leasing firms were merely interested in looking for certain numbers to meet in the short term. J.D. Jenks, CEO, understood our business model, why we needed what we needed.

D. Williams, Owner Discovery Ultrasound

Sweet! Thank you so much for all of your help and incredible speed. I just wanted to tell you that this new piece of equipment will be a game changer for my business. No one within 250 miles of me has one. I will crush my competition!
Global Financial and Leasing Client Testimonials
2019-03-20T07:39:06-07:00
Sweet! Thank you so much for all of your help and incredible speed. I just wanted to tell you that this new piece of equipment will be a game changer for my business. No one within 250 miles of me has one. I will crush my competition!

Richard Pennington, Owner Pennington Designs

Not your average lender! Judi and her staff were very professional and prompt in helping us to acquire much needed equipment which will allow us to grow our company. Very fair and willing to work with us through the entire purchase and assured that all vendors involved had fulfilled their orders and met my needs. We look forward to a long and successful partnership with Global Financial.
Global Financial and Leasing Client Testimonials
2019-03-20T07:39:30-07:00
Not your average lender! Judi and her staff were very professional and prompt in helping us to acquire much needed equipment which will allow us to grow our company. Very fair and willing to work with us through the entire purchase and assured that all vendors involved had fulfilled their orders and met my needs. We look forward to a long and successful partnership with Global Financial.

P. Bosley, Mgr. Member, Vendor

Larry, I really appreciate you working so diligently on this lease application and approval. You are a true professional!

Global Financial and Leasing Client Testimonials
2019-03-20T07:39:56-07:00
Larry, I really appreciate you working so diligently on this lease application and approval. You are a true professional!

G. Duncan, CFO, CPA, CFE

Judi your email agrees 100% with our discussion yesterday. I appreciate the customer service and you going to some trouble to help us out. That type of service is remembered and appreciated.
Global Financial and Leasing Client Testimonials
2019-03-20T07:40:24-07:00
Judi your email agrees 100% with our discussion yesterday. I appreciate the customer service and you going to some trouble to help us out. That type of service is remembered and appreciated.

Executive Director, Surgery Center

Judi, please accept my thanks to you and the team there for the very nice cookie basket. We received it this morning and it was a big hit with our staff. Your thoughtfulness is much appreciated and admirable. Again, my thanks to you and Larry for the smooth financing transaction we just completed. Have a great weekend. Now I have to go find some milk.
Global Financial and Leasing Client Testimonials
2019-03-20T07:18:42-07:00
Judi, please accept my thanks to you and the team there for the very nice cookie basket. We received it this morning and it was a big hit with our staff. Your thoughtfulness is much appreciated and admirable. Again, my thanks to you and Larry for the smooth financing transaction we just completed. Have a great weekend. Now I have to go find some milk.

Jeffrey L., FPC Financial Partners

Jerald Collens and Global Financial and Leasing Services have been great in helping me get some of my deals done that I otherwise would not have been able to close. Jerald looks at all aspects of the deal in order to find a solution that suits my clients.
Global Financial and Leasing Client Testimonials
2019-03-20T07:40:58-07:00
Jerald Collens and Global Financial and Leasing Services have been great in helping me get some of my deals done that I otherwise would not have been able to close. Jerald looks at all aspects of the deal in order to find a solution that suits my clients.

Office Manager, Podiatrist

I sincerely appreciate your response on this holiday weekend. You’re a true professional and your dedication with assisting clients has always been honorable. May the remainder of your weekend be enjoyable!
Global Financial and Leasing Client Testimonials
2019-03-20T07:21:41-07:00
I sincerely appreciate your response on this holiday weekend. You’re a true professional and your dedication with assisting clients has always been honorable. May the remainder of your weekend be enjoyable!

Taylor M., General Financial

Your company has helped touch the hearts of both new, and returning mutual clients across the US. Jerald Collens continues to show excellence in his career, and still goes out of his way to make himself available at all times to satisfy our demanding clients needs. We are proud to have a funding partner in our industry that is dedicated to finding a way to say “yes” to every single clients unique circumstances, when other funding sources typically say “no”.
Global Financial and Leasing Client Testimonials
2019-03-20T07:41:17-07:00
Your company has helped touch the hearts of both new, and returning mutual clients across the US. Jerald Collens continues to show excellence in his career, and still goes out of his way to make himself available at all times to satisfy our demanding clients needs. We are proud to have a funding partner in our industry that is dedicated to finding a way to say “yes” to every single clients unique circumstances, when other funding sources typically say “no”.

Malcolm, President Specialty Contracting Company

Judi, thanks for your support. We are building something here and having folks like yourself on our side makes all the difference!
Global Financial and Leasing Client Testimonials
2019-03-20T07:22:06-07:00
Judi, thanks for your support. We are building something here and having folks like yourself on our side makes all the difference!

IT/Telecom Vendor Sales Rep

Judi, the thanks is all yours!! You made this happen very smoothly. I am your loyal customer from here on.
Global Financial and Leasing Client Testimonials
2019-03-20T07:22:31-07:00
Judi, the thanks is all yours!! You made this happen very smoothly. I am your loyal customer from here on.

JH, Medical Vendor Rep

Thank you, Judi, you are the best ... So understanding of the complexities of this crazy industry and compassionate enough to work with people in difficult circumstances, there is a special place in heaven for you and Jim.

Global Financial and Leasing Client Testimonials
2019-03-20T07:26:35-07:00
Thank you, Judi, you are the best ... So understanding of the complexities of this crazy industry and compassionate enough to work with people in difficult circumstances, there is a special place in heaven for you and Jim.

CP – Medical Vendor

I want to thank you both so much for doing a wonderful job with my customers. You truly go the extra mile to assist them with their financing needs.
Global Financial and Leasing Client Testimonials
2019-03-20T07:32:35-07:00
I want to thank you both so much for doing a wonderful job with my customers. You truly go the extra mile to assist them with their financing needs.