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Are lease rental payments deductible?
| Are Allison lease payments deductible?
What is your rate? | How can I help my application?
Are lease rental payments deductible?
A true lease or tax lease allows the lessee to deduct rental payments
for capital assets used in the operation of a farm or business.
How the IRS views lease payment deductibility:
To determine lease payment deductibility, the IRS considers the intent
of the parties at the time the lease was made. Other factors to consider
are: investment by a lessor, transfer of title, equity interest in the
equipment, and bargain purchases option.
Are Allison lease payments deductible?
Our intent is to always write a tax lease unless otherwise instructed
by the customer (non-tax leases are available upon request). Our position
is: only the IRS and your CPA know for sure.
To assist your CPA, please refer to the following references:
Internal Revenue Service Publications:
- Publication 223 - Farmers Tax Guide (see Chapter
5)
- Publication 334 - Tax Guide for Small Business
(Rev, Nov. 93, see Chapter 12)
- Revenue Procedure 75-21, 1975-1 C.B. 715; 75-28, 1975-1,
CB 752; 76-30, 1976-2 CB 647; and 79-48, 1979-2 CB 529 as modified by Revenue
Procedure 81-71, 1981-2 CB 731. (For motor vehicles see Section 7701(h)
of the Internal Revenue Code.)
Court decisions setting lease precedents:
- Lockhart Leasing Co. v. Commissioner, 446 F.2d
269 (1971) affirming 54 T.C. 301 (1970).
- LTV Corp. v. Commissioner, 63 T.C. 39 (1974).
- Frank Lion Co. v. United States, 435 U.S. 561
(1978).
- Zaninovich v. Commissioner, US Court of Appeals (9th
Circuit) No 78-1818, 4-3-80 Reversing Tax Court, 69 T.C. 605, Dec. 34, 935.
Always consult with your accountant or tax attorney
regarding specific tax questions.
What is your rate?
Lease rates are a function of risk and the quality of the applicant and
type of equipment determines the risk. Every lessor or lender has a level
of risk they are willing to take and set their pricing accordingly. Allison
Leasing works with A, B and C credits, explained below.
"A" credit:
- An applicant who has been in business three
years or more.
- They have excellent credit both in the business
and personally.
- Their debt is not more than 50% of their assets
(including requested amount) and the requested equipment cost is not
more than 25% of their net worth.
- The equipment will be used in the established
business and they also have adequate cash flow to make the lease payment.
- Generally, a completed application and current
financial statement is required up to $100,000. Three years tax returns
if the request is over $100,000.
"B" credit:
- The applicant has been in business two years
or more.
- The applicant has good business and personal
credit.
- Their debt is not more than 65% of their assets and
the equipment is not more than 35% of their net worth. The application package
requires a completed application up to $75,000 and should include a completed
application, current financial statement, and three years tax returns if
over $100,000.
How can I help my application?
Approval time is greatly improved if the application is filled out completely.
Some key areas are:
- A bank reference (complete with phone numbers, account
numbers and the name of a contact person)
- Three trade references.
Trade references should be someone with whom you are presently doing
business or have done business with on a charge bases (i.e. suppliers,
other lease companies, fuel, feed, and the like).
Be sure to include phone numbers and the name of a contact person. It
is very helpful if the applicant tell his references that we will be calling
(especially the banker) and asks them to cooperate in providing the information
we request to process the lease application.
With a complete application package as described above, lease approval
time is usually 2 to 4 business hours. To access our online printable
application forms and worksheets, please click here.
For further information, please call your Allison Leasing representative
or Email Us
.
© 2003 Allison Leasing Company, A Division of Allison Financial Corporation
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