Most of the time the answer is depends. That is why having expert counsel to interpret the laws is to your advantage. Following are the several simple factors to determine if a lease can be depreciated:
1. Lease terms. The lessor owns the property; the lessee uses the property. 2. The kind of lease. An operating lease provides that the property be returned to the lessor. A capital lease is actually a purchase in which the lease is a means of financing (rather than a bank loan). Therefore, a capital lease has payments that include principal and interest.
3. Lease conditions. A lease that meets one or more of the following criteria is a capital lease, and the lessee should depreciate the leased asset:
Ownership is transferred when the lease terminates.
There is a bargain purchase option (B.P.O.), allowing the asset to be purchased at a price far below its fair market value.
4. The lease is for 75% or more of the asset's expected life--e.g., if the asset's life is 10 years.
Therefore, working with the right accountant, bookkeeper and CPA can help put money back in your pocket!
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