A dental practice needs a new CBCT imaging machine. A landscaping company needs a second skid steer. A print shop needs a wide-format press. In every case, the owner runs into the same fork in the road: lease it, or buy it?
The reflexive answer is usually "buy it, write it off." That instinct isn't wrong, exactly — 2026's tax rules make purchasing equipment more attractive than it's been in years. But "write it off" is only half the math. The other half is what the equipment actually costs you over its useful life, how it affects your cash position in the months you can least afford a squeeze, and whether you'll even want it in three years. Get the framework right and the decision stops being a coin flip.
Why 2026 Changes the Calculus
For years, business owners weighed Section 179 against bonus depreciation almost as an afterthought — bonus depreciation was scheduled to phase out entirely by 2027, dropping to 40% in 2025 and 20% in 2026, which made leasing relatively more attractive as the depreciation benefit shrank.
That phase-out is gone. Equipment placed in service after January 19, 2025 qualifies for 100% bonus depreciation again, restored on a permanent basis. Pair that with the Section 179 limits for tax years beginning in 2026 — a $2,560,000 deduction cap with the phase-out threshold starting at $4,090,000 — and most small and mid-size businesses can now write off the entire cost of qualifying equipment in the year they place it in service, regardless of which mechanism they use.
That's a real shift. When bonus depreciation was fading out, the tax argument for buying got weaker every year. Now it's back to full strength, and it's permanent (short of a future law change) — not tied to a sunset date you have to plan around.
The Three Numbers That Actually Matter
Skip the spreadsheet paralysis. Every lease-vs-buy decision comes down to three comparisons.
1. Total cost of ownership, not monthly payment
Lease payments are almost always lower than a loan payment on the same equipment — that's the sales pitch, and it's true. But total lease payments over a multi-year term frequently exceed what an outright purchase (or a purchase financed with a loan) would have cost, once you add up every payment plus any end-of-term buyout or return-condition fees.
Run the comparison across the full term you'd actually keep the equipment, not just the first year:
- Buy (cash or loan): purchase price + interest (if financed) − tax savings from depreciation − expected resale/salvage value at disposal.
- Lease: sum of all lease payments + any end-of-lease buyout − tax savings from deducting the payments as an operating expense.
The lease's simplicity is a feature, but the total-cost math is what tells you if you're paying a premium for that simplicity — and how much.
2. Cash flow timing, not just cash flow amount
Buying usually means a real cash hit up front — a full purchase price, or a down payment plus financed balance if you take out an equipment loan (commonly around 20% down for a term loan). Leasing minimizes upfront cost and converts a lumpy capital outlay into a predictable monthly line item.
This matters most for businesses with seasonal revenue or thin cash reserves. A landscaping company buying a mower in February, before the season's cash has come in, is in a very different position than one buying in September after a strong summer. If a large purchase would drain your operating cushion below what you need to cover payroll and rent for the next one to two months, that's a real cost even if the tax math favors buying.
3. How long you'll actually want the equipment
This is the variable owners most often get wrong, because it's not a tax question — it's a business question.
- Buy when: the equipment has a long useful life relative to how long you'll use it, technology in the category doesn't change fast, and you expect to run it past the point a loan or lease would be paid off (extracting extra "free" years of use).
- Lease when: the equipment becomes technologically obsolete quickly (computers, some medical and diagnostic equipment, certain software-embedded machinery), you only need it for a specific project or season, or you want the option to upgrade at the end of the term without a resale hassle.
A CNC machine you'll run for fifteen years is a different animal than a fleet of laptops you'll want to refresh in three.
Not All Leases Are the Same — This Changes Your Tax Answer
The single biggest mistake owners make is assuming "lease" always means "no depreciation deduction, just an expense." That depends entirely on how the lease is structured.
True (operating) leases function like a rental. Payments are typically 100% deductible as an ordinary business expense, but the equipment doesn't show up as yours for depreciation purposes, so Section 179 and bonus depreciation aren't available — and you don't own the asset at the end.
Capital leases and "$1 buyout" leases are treated more like a purchase in substance, even though they're documented as a lease. If the IRS considers you the effective owner — commonly signaled by a nominal buyout option, a lease term covering most of the equipment's useful life, or payments that add up to close to the equipment's fair value — you may be able to claim Section 179 and depreciation just as if you'd bought it outright, while still getting the lower monthly payment and reduced upfront cash outlay of a lease.
In other words: a well-structured $1-buyout lease can sometimes give you the cash-flow benefit of leasing and the tax benefit of buying. Don't take a lender's or salesperson's word for how a specific agreement will be treated — confirm the structure with your accountant before you sign, because reclassification after the fact (say, in an audit) is a much worse conversation.
Don't Forget the Balance Sheet
Since ASC 842 took effect, this decision isn't purely a tax question anymore. Both finance leases and operating leases now have to show up on the balance sheet as a right-of-use asset and a corresponding lease liability — the old trick of leasing equipment specifically to keep it "off balance sheet" no longer works the way it used to. If your business reports under GAAP (for a bank covenant, a bonding requirement, or investor reporting), a lease will still add to your liabilities, even if the cash-flow profile looks lighter than a loan. That's a separate conversation from the tax treatment, and it's worth having with your bookkeeper before the lease vs. buy decision, not after.
A Simple Worked Example
Say you're deciding between buying a $60,000 piece of equipment outright (financed with a 5-year loan) or leasing it for 5 years at $1,150/month with no buyout.
- Buy: $60,000 full deduction in year one via Section 179/bonus depreciation. At a 30% combined tax rate, that's an $18,000 tax savings, offsetting the financing cost. You own the equipment free and clear after the loan term, with resale value still on the table.
- Lease: $1,150 × 60 months = $69,000 in total payments, fully deductible as incurred — spreading the $20,700 tax benefit (at the same 30% rate) over five years instead of front-loading it. You have nothing to sell at the end, but you never tied up $60,000 (or a down payment) in one lump sum, and you're not exposed if the equipment's resale value turns out lower than expected.
Neither answer is universally "right" — the buy option comes out ahead on total cost and eventual resale value; the lease option comes out ahead on cash-flow smoothing and residual-value risk. The right call depends on which of those two things your business needs more right now.
Keep the Decision in Your Books, Not Just Your Head
Whichever way you go, the decision only pays off if your books reflect it accurately — a purchase needs to be capitalized and depreciated correctly, and a lease needs its payments categorized consistently so you can see the real monthly cost against the equipment's output. Beancount.io gives you plain-text accounting that's transparent and version-controlled, so every lease payment, loan amortization schedule, or Section 179 election is a change you can see, diff, and audit — not a black box buried in a vendor's proprietary format. Get started for free and keep your equipment decisions as clear as the equipment itself.