Can Leased Equipment be Depreciated?

“Work with your tax professional to optimize your businesses depreciation and fixed assets both for the tax year that just ended and for the future.” said David Levi, CPA and Managing Director at CBIZ MHM. This advice was provided in a 1/5/23 article in Forbes Magazine.

Even though this article was shared in January 2023, it is still pertinent in September of 2023.

Why would a Lease Finance Provider be passing on this advice? Can a Company claim a deduction on assets that are leased? These are valid questions.

Mr. Levi went on to state, “This is one area where a qualified professional “can really provide return on investment” (i.e., earn the money you’re paying them) because they know all the rules and can use them to adjust the deductibility or capitalization of your specific purchases to your current and expected profit/loss situation. Clearly your business must have purchased fixed assets (equipment, furniture, etc.) to use this strategy.”

When a vendor sells capital equipment to a business, they will typically give the customer many recommendations on how to finance their acquisition. Even though the customer may already have decided on the financing option they prefer, it might not be the optimal choice. The available methods include:

  1. Customer’s Bank Line of Credit
  2. Vendor’s In House Lease Finance Options
  3. Independent Lease Company (such as Clune/Landmark) Finance Options
  4. Outright Cash Purchase

Since the asset must be purchased to qualify for these deductions, the list of options is reduced to an Outright Cash Purchase, Bank Loan, or Capital Lease. This answers the questions posed earlier. Many businesses are surprised to learn that equipment that is financed with a Capital Lease can be depreciated and will qualify for a tax deduction. Here is the IRS provision: 

We strongly agree with Mr. Levi’s concluding advice:

“Your tax pro can help you determine whether it’s best to “write it off” (to take the entire deduction in the current year using bonus depreciation, the Section 179 expensing election, or the $2500 per item de minimis safe harbor election) or to capitalize the expense (take the deduction over the property’s class life). “

Let us know how we may be of service,

Kevin F. Clune, CLFP 
Clune & Company; A Division of
Landmark Financial Corporation