Equipment
Leasing
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Gregory J. Cook, EA, CPA+ Accredited Tax Advisor Past President Alabama Society of Enrolled Agents Past President Alabama Association of Accountants |
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Equipment Leasing as an Investor
Equipment leasing has become an increasingly popular program, both for the investor and for individuals or companies that rent equipment. For the investor, it has provided some attractive tax benefits. For the company renting and using the equipment, it:
allows capital to remain free for other purposes;
keeps debt off the company balance sheet;
provides an easier and possibly less expensive means of financing; and
eliminates the problem of what to do with equipment which may have become obsolete after years of use.
Many types of equipment may be leased. Some examples are computers, aircraft, equipment used for oil drilling, railroads, cable television, the medical field, pollution control devices, solar energy devices, and a myriad of other types of personal property. Note, however, that real property is not included in this group of investments.
In an equipment leasing program, investors purchase the equipment which is then leased to interested parties. Nearly all equipment leasing programs involve borrowed money as well as the investors' own capital contributions.
In order to remain an equipment leasing arrangement (rather than some other arrangement which does not receive the same tax benefits), the IRS requires that at least 20% of the equipment purchase price be provided by the investors, and they must be at risk for at least that amount. This is just one of many tests the IRS applies in determining whether or not an equipment leasing investment falls within its guidelines.

Tax benefits include some we've already discussed, such as depreciation, deductible interest and operating expenses, many of which are up-front deductions. The at-risk rules apply to equipment leasing ventures.
Other benefits include the cash flow, the possibility of a residual value at the end of the leasing term, and less economic risk since the investment involves tangible property. Along with that lower risk, of course, is the expectation of a lower return.
Many of the potential problems already discussed also apply to equipment leasing arrangements. These include the at-risk rules and the stringent tests the IRS applies to an equipment-leasing program to determine that it is, indeed, a lease rather than a conditional sale. Finally, for typical investors in a limited partnership arrangement, interest is one of the expenses that contributes to a passive loss. As a result, it is deductible only to the extent of passive income.
News and Articles from Bara Business Center
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Greg Cook on the Recovery Act ... The Recovery Act was passed by Congress and signed into law by President Obama on February 17, 2009. The purpose of the $787 billion Recovery package is to jump-start the economy to create and save jobs. The Act specifies appropriations for a wide range of federal programs, and increases or extends certain benefits under Medicaid, unemployment compensation, and nutrition assistance programs. The legislation also reduces individual and corporate income tax collections (to an extent), and makes a variety of other changes to tax laws.
This Act will have far reaching consequences and we will be dealing with it for years to come (at least until 2018). Twenty-eight different agencies – such as the Departments of Education; Health and Human Services; and Energy – have been allocated a portion of the $787 billion in Recovery funds. Each agency develops specific plans for how it will spend its Recovery Act funds. The agencies then award grants and contracts to state governments or, in some cases, directly to schools, hospitals, contractors, or other organizations. The agencies are required to file weekly financial reports on how they are spending the money and their specific activities related to Recovery funds. Read more about The Recovery Act |
While Our Government Rolls the Dice with Deficit Spending ...
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