Equipment lease vs. buy calculator

How the calculation works

Leasing and buying spread costs across different years and get different tax treatment, so adding up the payments tells you little. The calculator lists every cash flow in each option, applies the tax effect, and discounts it all to today's dollars.

1. Buy with a loan: the down payment, plus the loan payments (and any balance left when the lease term ends), minus tax saved on interest and depreciation, minus what the equipment is worth at the end. If you sell for more than its remaining tax basis, the gain is taxed at your rate.
2. FMV lease: the lease payments minus the tax saved by deducting them. You return the equipment at the end, so there's no residual value.
3. $1-buyout lease: treated as a financed purchase. The calculator finds the interest rate built into the lease payments, then you depreciate the equipment and deduct the interest part, exactly like a loan.
4. Discounting: each cash flow is divided by (1 + j)^months, where j is your borrowing rate × (1 − tax rate) ÷ 12. Taxes are assumed to be settled at the end of each tax year.

Depreciation options: Section 179 and 100% bonus depreciation both deduct the full cost in year one. MACRS 5-year and 7-year spread it over six and eight tax years using the IRS half-year tables (for 5-year property: 20%, 32%, 19.2%, 11.52%, 11.52%, 5.76%).

Worked examples

1. A $100,000 machine, expensed under Section 179

Buy with $10,000 down and a 9%, 60-month loan (payment $1,868.25), or lease for $1,900 a month in advance for 60 months. The machine should be worth $25,000 after five years. The combined tax rate is 25%.

• Cost to buy, after tax, in today's dollars: $63,394.94.
• Cost to lease: $73,676.28.
• Buying is cheaper by $10,281.34, helped by the $25,000 resale value and the year-one deduction.

2. The same deal with MACRS instead of Section 179

Spreading the deduction over 5-year MACRS raises the cost to buy to $65,892.69, and 7-year MACRS to $66,539.70. Buying still wins, but by $7,783.60 and $7,136.58. The total deduction is the same; taking it sooner is worth about $2,500 here, and more at higher tax rates (about $3,186 at 37%).

3. When leasing wins

Keep everything from example 1 but cut the lease to $1,600 a month. The lease now costs $62,043.19, and leasing is cheaper by $1,351.76. With no tax and no resale value at all, a $2,000 lease beats an 8% loan on a $100,000 machine by $705.55. A low enough lease rate or a low resale value tips the result.

Assumptions and limitations

• The equipment is placed in service at the start of your tax year, and taxes are paid at each year-end. Real timing varies, which shifts the result slightly.
• Section 179 is limited to your business taxable income. If you won't have enough, the calculator uses bonus depreciation, which gives the same year-one deduction.
• States often limit or ignore Section 179 and bonus depreciation. Use a tax rate that reflects how your state treats the deduction.
• Maintenance, insurance and property tax are assumed equal in both options. If the lease includes service, subtract its value from the lease payment first.
• Lease-end costs such as return shipping, excess-wear charges or FMV buyout offers aren't included.
• The residual value is your estimate. It's often the input that decides the result, so try a pessimistic figure too.

When this estimate is wrong

The comparison assumes you'd pay the same tax rate in every year and that the equipment's value at the end is realistic. If you're expecting a loss year, or the equipment will be obsolete sooner than the lease term, buying looks better on paper than it will be. Treat the result as a way to find which inputs matter, then confirm the tax treatment with your accountant.

Frequently asked questions

What's the difference between an FMV lease and a $1-buyout lease?

With a fair market value lease you're renting: payments are deductible and you can return the equipment. A $1-buyout lease is effectively a loan: you'll own it, so you depreciate it and deduct the interest instead of the payments.

Why does buying usually win when I can expense it?

Deducting the full cost in year one brings the tax saving forward. A dollar of tax saved now is worth more than the same dollar saved in year five.

What's the Section 179 limit for 2026?

$2,560,000, reduced dollar for dollar once you place more than $4,090,000 of qualifying property in service in the year (IRS Rev. Proc. 2025-32). SUVs are capped at $32,000.

How is the $1-buyout lease rate worked out?

It's the rate at which the lease payments plus the $1 repay the equipment cost. A $100,000 machine leased for $2,100 a month in advance for 60 months works out to about 9.85%.

Does my state follow Section 179 and bonus depreciation?

Not always. Many states limit or ignore one or both. Check with your tax preparer and use an effective tax rate that reflects your state's rules.

Go deeper: FMV vs. $1-buyout leases and Section 179 vs. bonus depreciation.

Data used by this calculator

DataSection 179 limits for 2026 ($2,560,000 / $4,090,000): as of 2026-09-26. Source: IRS Rev. Proc. 2025-32 §4.24.

DataMACRS half-year rates: as of 2026-09-26. Source: IRS Publication 946, Table A-1.