Operating Lease (Fair Market Value Purchase Option):

• At the end of the lease term, the lessee has the option to purchase the equipment for its Fair Market Value.
• Lease payments are charged to Operating Budget - which avoids Capital Budget constraints.
• Lease payments are generally lower than all other financing options - and are 100% deductible against taxable income.
• Leasing can greatly reduce the Cost Recovery Period for equipment.
• Operating Leases are Off-Balance Sheet transactions and improve most financial ratios, including ROA, ROI, and Debt/Net Worth measurements.
• Operating Lease payments are not an Alternative Minimum Tax (AMT) item.

Capital Leases (10% and $1.00 Purchase Options)

10% Purchase Option Lease:
At the end of the lease term, the lessee has the option to purchase the equipment for 10% of the original equipment cost.

$1.00 Purchase Option Lease: At the end of the lease term, the lessee has the option to purchase the equipment for $1.00.

• Fixed purchase options.
• Generally treated as a booked asset and liability on financial statements.
• Fully depreciable for tax purposes (under MACRS.)
• Preserves bank lines of credit for operations, real estate, or other capital expenditures.