Lease or Purchase

[equinecpa]

A client of mine had a riding arena built last year. The building is "leased" from Farm Credit Leasing a subsidiary of Ag South Farm Credit.

Terms are payments for 96 months, client owns the building at the end of the term.

It was explained to my client that the Leasing Co will depreciate the building and that my client the lessee can claim the whole lease payments.

How is this a lease and not a capital purchase? I can hardly doubt that Farm Credit Leasing would be misinforming their clients, what am I missing?

[TaxGuyBill]

It sounds like a depreciable asset to me. I suspect that person telling your client that may not actually know that tax-aspect of things.


"However, in general, you may consider an agreement as a conditional sales contract rather than a lease if one or more of the following conditions apply: ... You get title to the property upon the payment of a stated amount of "rental" payments required under the agreement."

https://www.irs.gov/help-resources/tools-faqs/faqs-for-individuals/frequently-asked-tax-questions-answers/small-business-self-employed-other-business/income-expenses/income-expenses-7

[TAXNJ]

This topic seems to show up a lot. But the rules for operating vs capital lease for tax purposes has not changed.

Read the attachment and you can then talk with confidence why the other person is wrong (if what you state they said).

Keepi it for future reference (should have been covered in your accounting and tax courses.

http://www.businessdictionary.com/article/1066/capital-lease-vs-operating-lease-d1412/

[Snaggletooth]

Capital Lease

Equine, what the leasing company does on their books is not your clients' business (or yours either). Focus on the capital nature of this arrangement.

The siren song salesman approach for deducting "rent" as a current expense versus a long-lived depreciation deduction has appealed to renters for years and years. And the salesman never seems to take responsibility for the accuracy of the buyer's tax return.

There exist certain criteria where deductions for rent can be allowed, but this doesn't sound like one of them. This sounds like just a typical PURCHASE with financing under the attempted paperwork guise as rent.