Is it a lease or asset purchase?

[rsandy]

A client has entered into a lease agreement to purchase $19M in equipment and $ 6M in software. The buyout at the end of the lease term of 66 months is $ 101.00. Isn't this really as asset purchase as the residual value is not representative of the true remaining value. I'm inclined to capitalize the purchase and write off the "interest expense" as one would with a true installment loan agreement. What say you?

[BOB W]

A client has entered into a lease agreement to purchase $19M in equipment and $ 6M in software. The buyout at the end of the lease term of 66 months is $ 101.00. Isn't this really as asset purchase as the residual value is not representative of the true remaining value. I'm inclined to capitalize the purchase and write off the "interest expense" as one would with a true installment loan agreement. What say you?

You have it right. Capitalize and depreciate. 179 to the max if eligible.

End of lease buyout has to be greater than 10% of purchase price to allow handling it as a lease.

[Nashville]

Capital Equipment

I agree with Bob W. The "payoff" is so nominal that this is clearly a financing arrangement disguised as a lease.

Not so sure this qualifies as s.179 if it is not paid for in cash during course of the year.

[Matt Sova]

Asset

It is an asset and it is qualified for Section 179. Just as a contractor buying a dumptruck and the loan is for 5 years they can still 179 the truck even if it is not all paid in one year.

[veritas]

No Sec 179

The amount purchased exceeds the limitation amount. For 2007 the limit is $625,000.