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True Tax Lease

True Tax Lease – Criteria

A true tax lease must meet all of the following criteria:

  • At the start of the lease, the fair market value of the leased property projected for the end of the lease term equals or exceeds 20% of the original cost of the leased property (excluding front-end fee, inflation and any cost to the lessor for removal).
  • At the start of the lease, the leased property is projected to retain a useful life at the end of the initial term that both exceeds 20% of the original estimated useful life of the equipment and is at least one year in duration.
  • The lessee must not have a right to purchase or re-lease the leased property at a price which is less than its then fair market value.
  • The lessor cannot obligate the lessee to purchase the leased property at a fixed price.
  • At all times during the lease term the lessor must have a minimum unconditional “at risk” investment equal to at least 20% of the cost of the leased property.
  • The lessor must show that the transaction was entered into for profit, apart from tax benefits resulting from the transaction.
  • The lessee must not furnish any part of the purchase price of the leased property, nor have loaned or guaranteed any indebtedness created in connection with the acquisition of the leased property by the lessor.

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