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CAPITAL LEASE v TRUE LEASE

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There are two kind of leases.

 

Let’s say you “lease” a copier for three years. Sales tax is paid (per Florida lease rules) and at the end of the three years you can buy it for one dollar. That is called a CAPITAL LEASE. It is really just another form of financing. In that case you set up the ASSET and LIABILITY using an imputed interest rate. You bought it so you can depreciate it.

 

The other lease is the one mostly used on vehicles. You pay a monthly “lease” (including Florida sales tax). You have agreed in advance to the option to purchase the vehicle at an agreed upon fair market value at the end of the lease. That is a “TRUE LEASE”. You don’t really have ownership until you purchase it.  In this case you can expense the entire monthly lease payment.  You don't own it.