An Open End or Terminal Rental Adjustment Clause (TRAC) lease provides the greatest flexibility. With this type of lease your payments are usually lower than conventional financing and they have no mileage or wear and tear provisions.
Commercial Leasing provides many financial, accounting and productivity benefits.
Some of those are:
- Preserve working capital and liquidity for other corporate capital expenditures
- Off-balance sheet accounting
- No down payment
- Lower payment than conventional financing
- Potentially reduce taxes. Leasing is recognized as a tax-deductible expense by state and federal agencies and is not an "add back item" in calculating AMT. In addition, leasing provides sales tax exemption on acquisition price of the vehicle in most states. (Rental tax is collected on the monthly lease payment.)
- Shorter lease terms mean you can replace vehicles more often and avoid maintenance costs.
A TRAC lease expense may be designated as operating leases under FASB 13 and can be foot-noted as off-balance sheet items. This may enable you to improve ROA, avoid leverage restrictions and potentially improve reported earnings.
You specify the vehicle(s), select the dealer, and negotiate the purchase price. Then LeaseCompare.com purchases the vehicle(s), completes the lease documents and handles licensing and title documents. Credit approval is handled by a national bank. LeaseCompare.com can assist in securing the vehicle based on your specifications.
At lease termination, your company can either purchase the vehicle for the residual amount, trade-in the vehicle for a new one, or the bank will sell the vehicle and give your company a cash rebate of sale proceeds over the residual amount. After the vehicle is sold, you will receive a complete summary of the sales transaction. You receive 100% of any gain over the residual value, or be liable for any deficiency, if applicable.
NOTE: This information is based on accepted accounting principles and interpretations. It is intended to help you understand Commercial Leases. This is not to be considered tax or legal advice. Always consult with a qualified tax or legal advisor regarding any aspect of the federal tax code.
