Consider these factors when deciding whether to buy or lease equipment

By Carol Taylor, CPA/PFS, and Fritz Wood, CPA, CFP, personal finance editor

Q. I'm shopping for a new radiograph machine. Which offers greater tax advantages, buying or leasing?

A. Both financing arrangements offer tax advantages, so the choice depends on your particular situation. If you borrow money to buy equipment, you can deduct the interest. You also can deduct the equipment cost--up to $20,000 for purchases in 2000, according to Internal Revenue Service (IRS) Code Section 179. If your equipment purchases exceed the limit, you can deduct annual depreciation as well.

On the other hand, leasing lets you deduct the full payment amount. But because you don't own the equipment, you can't deduct depreciation. Ask your financial advisor to review any lease before you sign--the IRS considers some equipment leases as purchases.

If your income spikes this year, consider buying equipment to maximize the Section 179 deduction. But if you're just starting a practice and expect your income to increase during the next few years, lease the equipment and stretch the tax deductions over the lease term. Regardless of your situation, make sure you consider the interest rate, up-front costs, prepayment costs, and buy-out provisions when deciding whether to lease or buy equipment.

June 2000 Veterinary Economics