If you are in the construction industry, you have most likely read other articles on the pros and cons of leasing versus buying heavy equipment. And most of those articles have probably focused on the tax benefits and consequences. Whenever I hear a conversation about tax benefits, my eyes glaze over just like when my wife turns on American Idol. Yawn. Basically, when you buy equipment you can reduce taxable income for the depreciation, interest, insurance, repair costs, and taxes. When you lease equipment, you can claim the payments as a business expense. To truly decide which is better from a tax perspective, you should talk to your accountant. However, here are some other considerations:
When you buy something, it’s yours! You own it. That can be a big factor, and it allows you to customize or modify it to suit your needs. You can keep it for as long as you want, and sell it when you don’t need it or want to upgrade. And buying is ultimately cheaper over the long term. Interest rates are currently low, and you might even find a 0 percent financing offer.
The industry is seeing a shift toward more leasing of equipment. There are several reasons for this. For me, a major reason is that you do not risk obsolescence. This is true now more than ever as computer technology is making equipment safer and more efficient each year. There is a lot more technology in today’s equipment than there was just five years ago. Another reason more contractors are leasing is the cost. Yes, leasing does cost more over the long run, but it is often structured in a more palatable way. There usually is no up-front cost, and some leasing companies offer flexible lease payments so you can pay more when the jobs are coming in and less during slower parts of the year.
When you are faced with this decision, my advice is to consider the pros and cons of each option carefully. Also, keep in mind not only the potential lower cost option of buying the equipment, but the fact that the equipment could be obsolete in a few years. Finally, be sure to talk to your accountant—we weren’t kidding about that.