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:

  • A lease 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 leased equipment will be used in the established business and they also have adequate cash flow to make the lease payment.
  • Generally, a completed lease 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 lease applicant has been in business two years or more.
  • The lease 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 lease application package requires a completed application up to $75,000 and should include a completed lease application, current financial statement, and three years tax returns if over $100,000.

How can I help my lease application?
Approval time is greatly improved if the lease application is filled out completely. Some key areas are:

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 lease 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 .