The old logic doesn’t hold the way it used to

For years, the argument for leasing business equipment went like this: monthly payments, smaller cash outlay, and you deduct every payment you make.

That reasoning assumed you’d have to depreciate a purchase over five or seven years. When the alternative to leasing is stretching a $60,000 deduction across most of a decade, leasing looks competitive.

It doesn’t look that way anymore.

What changed: 100% bonus depreciation is permanent

Since 2017, bonus depreciation has allowed businesses to write off qualifying equipment in full the year it’s placed in service. In 2025, that 100% rate was made permanent.

Now, when you buy a piece of equipment and put it to work, you can deduct the entire purchase price this year. Not over five years. Not over seven. Now.

That changes the comparison entirely.

A real example

Say you need a $100,000 piece of commercial equipment. You have two paths:

Buy it (outright or financed): Section 179 and bonus depreciation let you write off the full $100,000 in year one. At a combined effective federal and state rate of 30%, that’s $30,000 off your tax bill — this year.

Lease it at $2,000 per month: You deduct $24,000 in year one. At 30%, that’s $7,200 in tax savings for the first year.

First-year tax advantage of buying: $22,800.

Yes, a purchase requires coming up with the money. But here’s what a lot of business owners don’t realize: you can finance the purchase and still claim the full first-year deduction. Section 179 applies to the full purchase price even if you put nothing down and are making monthly loan payments for the next three years.

So you keep the cash flow flexibility of making payments, and you still get the entire deduction up front. That’s usually the right structure.

When leasing still makes sense

There are real situations where a lease is the better call.

Technology that goes obsolete fast. Equipping employees with laptops or specialized software workstations? A three-year operating lease lets you return the equipment when it’s outdated. The tax deduction is smaller, but you’re not stuck with hardware that’s obsolete before it’s paid off.

You’re in a loss year. Bonus depreciation creates a first-year deduction. If your business is already in a loss, there’s no taxable income to absorb it. You’ll carry it forward — but if cash preservation is the priority right now, smaller lease deductions spread over time may actually fit better.

Equipment with high residual value. Some equipment holds its value well enough that you’d rather return it at fair market value than own an aging asset. Lease structures with buyout options exist for exactly this scenario.

You need to protect your credit lines. A purchase financed through a bank loan shows up on your balance sheet and affects your debt ratios. An operating lease, for many smaller businesses, doesn’t. If you need to preserve borrowing capacity for other purposes, a lease may be worth the tax trade-off.

The lease-or-buy decision depends on your tax picture for this year, your cash position, and what the equipment actually is. If you're about to sign something, let's look at the numbers before you do.

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One thing to get right: the type of lease matters

Not all leases are the same to the IRS.

An operating lease — where you’re paying for the use of the equipment and returning it at the end — gives you a deduction for your payments. You don’t own it, so there’s no depreciation claim.

A finance lease (sometimes called a capital lease) — where you’re essentially purchasing the equipment on an installment basis, with a nominal buyout at the end — is treated as a purchase by the IRS. You can claim Section 179 and bonus depreciation on a finance lease.

The difference matters if you’re structuring a deal and expecting a specific tax result. Have your accountant confirm which type you’re signing before you commit. Some vendors call things “leases” that the IRS treats as purchases — and vice versa.

Section 179 limits in 2026

Section 179 lets you expense up to $2,560,000 of qualifying property in 2026, with the deduction phasing out once total equipment purchases exceed $4,090,000. For most small businesses, those limits aren’t a concern.

Both Section 179 and bonus depreciation apply to new and used equipment, as long as it’s new to your business. A used machine you buy from another company still qualifies.

The bottom line

For most equipment decisions in 2026, buying — outright or financed — produces a bigger and faster tax benefit than leasing. Permanent 100% bonus depreciation flipped the math.

Leasing still has legitimate uses: rapid obsolescence, off-balance-sheet treatment, or protecting liquidity when cash is tight. But if someone is recommending a lease purely for the tax benefit, ask them to run the comparison against a financed purchase. In most cases, buying wins — by a meaningful margin.

A major equipment decision can move your tax bill by tens of thousands of dollars depending on how you structure it. Let's make sure you're getting it right before you sign.

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This content is for general informational purposes only and does not constitute legal or tax advice. Tax rules are complex and change frequently. Consult a qualified tax professional before acting on this information. Geiger Tax & Accounting serves clients in New York and nationwide.