Types of Leases
Leasing furnishes a customer with the use of equipment for a specified period of time, usually anywhere from 12 to 84 months. It also gives the customer the option to purchase the equipment for some price, at some point during the term or at the end of the lease..
Here’s a brief overview of the three different lease types Alliance Capital offers::
Capital Lease:This usually provides the customer with a stated purchase option. The purchase option may range from $1.00 to a predetermined percentage of the selling price. A Capital Lease is a finance lease; ownership, from an accounting viewpoint, is with the customer, but may or may not be from a tax viewpoint.
Operating Lease:This provides the customer with a renewal option, a purchase option, or a no purchase option. The purchase option may be a stated amount provided it is not nominal; or it may be a fair market value. An Operating Lease does not provide ownership to the customer from an accounting viewpoint and may or may not from a tax viewpoint.
TRAC Lease:Available only for over-the-road licensed vehicles. This is a Tax Lease to which a Terminal Rental Adjustment Clause (TRAC) has been added under which the purchase or sale of the equipment is required at the end of the lease. The lessee pays rentals based on an agreed-to residual value determined at the initiation of the lease.
Criteria for Classification
The criteria for lease classification for accounting purposes is set forth by the Financial Accounting Standards Board. Lease classification criteria for tax purposes are set forth by the Internal Revenue Service Guideline. These standards and guidelines are comprehensive in nature and require your accounting and tax consultant to determine classification and treatment.
For more information about leasing, call 877-406-3222 ext. 200 or Contact Us