Resource
Lease versus loan for Section 179
Section 179 and bonus depreciation apply differently across lease and loan structures. The lease type chosen decides whether the deduction is even available.
Direct answer
Section 179 and bonus depreciation generally require the practice to own the equipment for tax purposes. A loan or a nominal buyout lease is treated as ownership, and a true fair market value lease usually is not. Practition Finance publishes the structural difference, with the current limits and their dates.
As of October 2026
Why the structure gets settled last and matters first
Equipment decisions usually run in one order: the practice picks the device, the vendor quotes a monthly payment, and the financing paperwork arrives at the end as an administrative step. By then the structure is chosen. The problem is that the tax outcome was decided in that last step, not in the purchase decision, and the accountant sees it after the return is already being prepared.
The vocabulary hides the difference. A dollar buyout lease, a 10 percent purchase option lease, and a fair market value lease are all called leases and all quote a monthly payment. For tax purposes the first 2 commonly behave like a purchase, and the third commonly behaves like rent. Same word, different treatment, and a payment difference small enough that nobody asks why.
The stakes are the timing of the deduction rather than its existence. Rent on a true lease is deductible as it is paid. An owned asset can be expensed heavily in the year it is placed in service, subject to the current limits and the phase-out. On a large imaging or laser purchase, that timing difference changes the tax year the practice is planning around.
How each structure is treated
- 01
Equipment loan
The practice buys the asset and borrows against it. Title sits with the practice from day one, subject to the lender's lien. The asset is depreciable property, so the Section 179 election and bonus depreciation are available in the year it is placed in service, and the interest portion of the payment is separately deductible.
- 02
Nominal buyout lease
A lease ending in a dollar or another nominal purchase price is commonly treated as a conditional sale rather than a lease, because the practice was always going to own the asset. Treatment follows the substance, which usually means the same depreciation options as a loan and the same paperwork burden as a lease.
- 03
Purchase option lease
A 10 percent purchase option sits between the 2. The determination turns on whether the option is priced far enough below expected value that exercising it is the only rational choice. That is a facts and circumstances question, which is why the lease document, not the sales sheet, is what the accountant reads.
- 04
Fair market value lease
The residual is set at the end of the term rather than at signing, so the lessor keeps ownership risk. The practice is renting. Payments are deductible as they are made, the expensing election generally does not apply, and the buyout at term is a separate purchase with its own basis and its own in-service date.
- 05
Placed in service, not purchased
The deduction attaches to the year the equipment is installed and available for use, not the year it was ordered or paid for. A December order with a February install lands in the following tax year. On a build-out where the operatory is not finished, the install date is the date that governs.
The comparison that settles it
| Structure | Tax owner | Deduction treatment |
|---|---|---|
| Equipment loan | Practice | Expensing election and bonus depreciation available |
| Nominal buyout lease | Practice, generally | Commonly treated as a purchase |
| Purchase option lease | Depends on the option | Facts and circumstances determination |
| Fair market value lease | Lessor | Payments deducted as rent when paid |
| Buyout at end of a fair market value lease | Practice from that date | New basis, new in-service date |
How to choose before the paperwork arrives
Decide the ownership question first, on the asset rather than on the payment. Equipment the practice will run until it fails belongs in a structure that transfers title, because the write-off timing and the absence of a residual both favor ownership. Technology that turns over on a short cycle often belongs in a fair market value structure, where the upgrade path is the point and the rent deduction follows the payment.
Then take the in-service date seriously. If the tax year matters, confirm the install and commissioning schedule in writing before signing, and give the accountant the structure and the date together. Run the pre-tax comparison in the equipment model first so the decision is made on total cost, then let the election adjust the ranking rather than drive it.
Do not treat a vendor's statement that a lease is Section 179 eligible as a determination; the lease document and the in-service date decide it, and the return is filed by the practice
The figures behind this
| What it measures | Market range | Confidence | How to read it |
|---|---|---|---|
| Section 179 limit | $2,560,000, phase-out from $4,090,0004 | VerifiedAugust 2026 | The expensing ceiling and the phase-out threshold for the current year. |
| Bonus depreciation | 100%, permanent, property acquired after January 19, 2025 (OBBBA)5 | VerifiedAugust 2026 | The share of basis available in the first year alongside the election. |
| Equipment recovery period | 5 years, Asset Class 57.06 | VerifiedAugust 2026 | The published recovery period the financing term should not outrun. |
What owners ask about this
01Can a leased asset be expensed under Section 179?
It depends on whether the arrangement is a lease in substance. A nominal buyout lease is commonly treated as a purchase, which makes the election available. A true fair market value lease is rent, and rent is deducted as paid rather than expensed. The lease document controls, not the label on the quote.
02What if the equipment is delivered in December but installed in January?
The deduction generally follows the placed in service date, which is when the equipment is installed and ready for use. Delivery, payment, and purchase order dates do not move it. On year-end purchases, the install schedule is worth confirming in writing before the structure is signed.
03Does financing the equipment reduce the deduction?
No. An owned asset is expensed on its cost, not on the cash paid toward it, so a financed purchase and a cash purchase support the same election in the year it is placed in service. The interest portion of the payments is deducted separately as it accrues.
04Which structure is cheaper overall?
Priced to the end of term including the buyout, a loan or a nominal buyout lease usually costs less than a fair market value lease. The fair market value structure buys flexibility on equipment that becomes obsolete quickly. Compare total payments plus residual, not the monthly figure alone.
05Does Practition Finance give tax advice?
No. Practition Finance is an independent business financing referral service. It publishes the current limits with their sources and dates and describes how structures differ. The election belongs to the practice and its accountant, and every financing term comes from a funding partner that communicates directly with the practice.
Sources
- 1Internal Revenue Service, Publication 946
- 2Internal Revenue Service, Publication 535, leases
- 3Equipment Leasing and Finance Association
- 4Section179.org, Ameris Bank, Rev. Proc. 2025-32
- 5Section179.org, US Bank, AE Tax Advisors
- 6Dental Practice Insider citing Rev. Proc. 87-56
When the quote is in hand and the structure is still open, send the request for team review. A funding partner presents its own terms in writing.