Is it better to lease or buy equipment for a small business?

Leasing is usually better when: you need equipment that becomes obsolete quickly (tech, vehicles), you want to preserve cash and credit lines, or you want predictable monthly expenses. Buying is usually better when: you plan to use the equipment for 7+ years, you want the depreciation deduction (Section 179 lets you deduct the full purchase price in year 1), and the equipment holds residual value. Compare the 5-year total cost of each option — not just the monthly payment.

What is Section 179 and how does it affect the buy vs lease decision?

Section 179 allows businesses to deduct the full cost of qualifying equipment in the year it's purchased rather than depreciating it over several years. For 2025, the deduction limit is $1.22 million. This can significantly reduce the effective cost of buying equipment — a $50,000 piece of equipment purchased by a business in the 25% tax bracket effectively costs $37,500 after the Section 179 deduction. Lease payments are also deductible but spread over the lease term.

What should I look for in an equipment lease agreement?

Key terms to review: (1) Residual value — what you can buy the equipment for at end of lease, (2) Mileage or usage caps that trigger extra fees, (3) Maintenance responsibility — who pays for repairs, (4) Early termination fees — can be substantial, (5) Option to purchase vs. return at end of term. A $1 buyout lease (capital lease) is essentially a purchase financed over time; a fair market value lease gives you flexibility to return or upgrade.

SmartBizCalc

Equipment Lease vs Buy Calculator

Compare the true 5-year cost of leasing vs buying — monthly payments, tax benefits, and residual value included — so you can make the right call for your business.

Equipment

Equipment Cost ($)

Residual Value after 5 yrs ($)

Lease Option

Monthly Lease Payment ($)

Lease Term (months)

Buy / Finance Option

Down Payment ($)

Loan Interest Rate (%)

Loan Term (months)

Tax

Business Tax Rate (%)

Use Section 179?

Lease

Monthly payment—

Total payments—

Tax savings—

5-yr net cost—

Buy

Monthly payment—

Total out-of-pocket—

Tax savings—

5-yr net cost—

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5-Year Summary

Lease: 5-yr net cost—

Buy: 5-yr net cost—

Savings with better option—

Buy: equity retained (residual)—

Tax savings estimates are simplified. Section 179 deduction subject to annual limits and business income requirements. Consult a tax advisor for your specific situation. Residual value estimates vary by equipment type and market conditions.

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You might also find useful: Equipment Financing Calculator · Small Business Loan Calculator · Business Budget Calculator