Which of the following is LEAST LIKELY to be an incentive for structuring a lease as an operating lease instead of a capital lease? The answer is: The lessee is in a high tax bracket and the lessor is in a low tax bracket. I read somewhere a few weeks ago that the lessor would want to structure a lease as a capital lease if he is in a high tax bracket. I can’t remember why this is so, and can’t find that info in the books for some reason. Any ideas? I just want to know why this is the case. Thanks.
He gets the advantage of the higher Depreciation expense – because the lease is an asset, and when he’s in the higher tax bracket - he gets an income tax advantage.
Maybe I’m confused with the terminology. Isn’t the lessor the one who sells/leases the asset and the lessee is the one who pays for it? If the lessor is the one who sells/leases the asset, then if he uses a capital lease, wouldn’t that go on his books as if it were a sale, thereby forfeiting the depreciation and giving that the the lessee?
That would happen I guess in a Sales Type Lease. In a Direct Financing capital Lease – equipment still remains on the books of the Lessor, as well. So he continues to depreciate that on his books.
im a bit iffy about that point aswell, but the way i see it, whoever has the higher marginal tax rate benefits the most from being able to depreciate the asset…