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A system designed to calculate the tax depreciation or cost recovery of equipment. ACRS was replaced by the Modified Accelerated Cost Recovery System (MACRS).
Used to describe the addition of related equipment to an existing lease agreement. This can be done when the related equipment will be leased under the same conditions and structure as the existing lease.
A payment made at the beginning of a lease term. Lenders will often require one or two installments on a lease agreement, made at the time the lease agreement is executed.
This optional tax calculation uses an individual's or organization's normal taxable income, increased by the taxpayer's preferences for the year. The accelerated segment of any depreciation can be used to increase the taxpayer's minimum taxable income. In any case, the taxpayer may be required to pay the larger of either the regular tax based on the normal taxable income, or the alternative minimum tax.
The dispersion of the cost of an asset over its useful life. Also used to describe the process by which money is set aside regularly in a special fund for the payback of a debt or other liability. The payment typically will include an interest payment and a payment on the principal amount owed.
The effective interest rate over the course of a year, taking into account compounding and other fees.
A rise or increase in the value of an asset.
A lease or loan payment installment that is larger than the other payments in the lease or loan agreement. A balloon payment is usually the last payment on the lease.
A lease provision allowing the lessee, at its option, to purchase the leased property at the end of the lease term for a price that is sufficiently lower than the expected fair market value of the property.
An asset's value according to depreciation schedules such as (MACRS).
The purchase of leased equipment during the term of the lease or at the end of the lease term. Examples include $1 Out and 10% Purchase.
Type of lease classified and accounted for by an individual or organization as a sale or financing if it meets the following criteria: a) the lender transfers title to the individual or organization at the end of the lease term; b) the lease agreement contains an option to purchase the equipment or asset at a bargain price; c) the lease term is equal to 75 % or more of the estimated life of the property (exceptions for used equipment leased toward the end of its useful life); or d) the present value of minimum lease rental payments is equal to 90% or more of the Fair Market Value of the leased asset. The foregoing is set forth in the Financial Account Standards Board Statement #13 (FASB No. 13)(See Finance Lease).
A document through which the lessee acknowledges that the equipment to be leased has been delivered, is acceptable, and has been manufactured or construed according to specifications. Also known as Certificate of Delivery and Acceptance or the Delivery and Acceptance (D& A) document.
A purchase agreement in which an individual or organization is allowed to hold title to the equipment or asset, provided conditions of the agreement are met and fulfilled in accordance with the agreement. This type of sale provides immediate ownership of the asset for tax consideration, to the individual or the organization, but provides the seller a security interest in the property until all payments are completed.
Referring to multiple, related, lease agreements having the same term length, and ending at the same time.
The act of failing to fulfill a lease, loan, or other debt agreement.
A tax deduction representing a reasonable allowance for exhaustion, wear and tear, and obsolescence, that is taken by the owner of the equipment and by which the cost of the equipment is allocated over time.
The termination of a lease before the end of its original term, typically requiring the payment of penalty fees to the lender.
The period of time during which an asset will have economic value and be usable.
Options offered in a lease agreement, allowing an individual or organization to determine whether or not to purchase the equipment, extend the lease term, or return the property.
A document that describes, in detail, the equipment being leased. May also state the lease term, commencement date, repayment schedule, and location.
The estimated Fair Market Value of an equipment or property at the end of a lease term.
The period in which an asset is expected to be useful in trade or business. Used for purposes of calculating the maximum allowable term of a tax lease, the method of depreciation, whether or not the lease is a capital lease, as well as the method of depreciation for a capitalized leased asset.
An option to purchase leased property at the end of the lease term at its then fair market value.
A renewal option that allows an individual or organization to renew the lease agreement, at the end of the initial term, based on a fair market valuation of the equipment or property.
The Financial Accounting Standards Board. It is responsible for establishing standards and guidelines for lenders and lending companies providing leasing services.
Statement 13 of the FASB states that a lease that transfers substantially all of the benefits and risks of ownership should be accounted for as the acquisition of an asset by the lessee and as a sale or financing by the leasing company. Other leases should be accounted for as the rental of property.
A term used to describe most lease types. Usually a total pay-out agreement that cannot be canceled, and whereby the individual or organization that leased the equipment or property is held responsible for maintenance, taxes, insurance, and or other related costs. Also known as a Capital Lease.
A written, secured claim to personal property. The statement designates the secured party as the lender and the individual or organization that is leasing the equipment as the debtor. The securing party obtains lien rights upon filing the financing statement with the appropriate governing office.
An option given to the lessee to purchase the leased equipment from the leasing company on the option date for a guaranteed price. Both the date and the price must be determined at the inception of the lease. A typical fixed purchase option is 10% of the original cost of the equipment.
A lease agreement in which the lender recovers, through the lease payments, all costs incurred in the lease plus an acceptable return, without any reliance upon the leased equipment or property's future residual value.
An individual or organization who guarantees that all of the terms of a lease agreement will be fulfilled in the event that the lessee fails to do so.
A written promise by one party to fulfill an obligation or to repay a debt if another party should fail to do so.
The value of the leased equipment or property that is to be insured by an individual or organization that has leased the equipment or property.
A charge for the use of equipment or property from its date of delivery and acceptance up to the commencement date of the actual lease agreement.
A document by which an owner of property acknowledges that any leased equipment on-site belongs to the individual or organization that has leased the equipment, and will not be viewed as part of the property itself.
A financial penalty usually imposed when the payment terms of a lease or loan agreement are not met within the time period specified by the agreement.
A contract in which one party conveys the use of equipment or property to another party for a specified period of time at a predetermined rate, resulting in a periodic rental payment for the use of the equipment or property.
The right of one party to assign the terms and conditions of a lease agreement to another party. In general, lenders will reserve the right of assignment, giving the assignee the rights and privileges outlined in a lease agreement.
The lease factor used to determine a periodic payment for leased equipment or property under a lease agreement. Also known as the Lease Factor or the implicit interest rate in minimum lease payments.
The total length of the lease agreement, or the period covering the lease agreement.
An individual or organization that pays the owner of equipment or property for use of the equipment or property for a specified period of time.
A lender or other company that owns equipment or property, and leases the equipment or property to an individual or organization for a specified period of time and according to an agreed upon payment schedule.
A document issued by one bank, usually addressed to another bank, indicating that the party named on the document can draw the funds stated on the document, subject to provisions written into the document.
An agreement by a lender to make funds available to an individual or an organization, up to a specific amount.
A contract where an individual or organization leases desired equipment or property, and is able to acquire other equipment or property under the same basic lease terms and conditions without negotiating a new lease agreement.
A leasing transaction in which neither the asset nor the lease agreement is shown on the individual or organization's balance sheet. A lease is considered off-balance sheet to the individual or the organization when the lease agreement is not a capital lease.
A conditional sale lease in which an individual or organization guarantees that the lessor will realize a minimum value from the sale of the asset at the end of the lease.
Any lease that is not a capital lease. These are generally used for short term leases of equipment.
The discounted value of payments to be received at a later date, accounting for a designated interest rate. Present Value represents a series of future cash fluctuations, illustrated in present day dollar values. Also known as Net Present Value.
A provision by which an individual or organization has the right to purchase the equipment at the end of a lease term.
This is a use tax as opposed to a sales tax, imposed by some states on a lessee when operating equipment is leased. This tax is usually worked into the lease agreement.
The stated value of an asset at the conclusion of a lease.
An arrangement in which equipment is purchased by a lender from the company owning it and using it. The lender then becomes the owner and leases it back to the original owner, who continues to use the equipment based on a rental payment and a lease agreement.
A lease that contains a payout stream requiring the lessee to make payments only during certain periods of the year. This is ideal for businesses that have seasonal sales or cash flow fluctuations.
A lease in which the monthly payment increases (step-up) to a predetermined amount over the term of the lease.
A lease wherein the lender recognizes the tax incentives provided by the tax laws for investment and ownership of equipment. Generally, the lease rate factor on tax leases is reduced to reflect the lessor's recognition of this tax incentive.
An exchange of leased equipment or property usually to upgrade, and execution of a new lease agreement, superseding the original agreement.
Also known as an operating lease. In this type of lease, the leasing company qualifies for the tax benefits of ownership, and the individual or organization that leased the equipment or property is permitted to claim the total amount of the lease payments as a deduction against the taxable income.
The statutory provisions designed to govern commercial transactions. It is meant to permit the expansion of commercial practices through agreements of parties, and the synchronization of law throughout separate jurisdictions.
A document filed with a state department or count clerk's office providing public notice of a security interest in personal property, collateral or commercial equipment.
The period of time during which an asset will have economic value and be usable. The useful life of an asset is also called the Economic Life of the asset. To qualify as an operating lease, the equipment or property must have a remaining useful life of 25% of the original estimated useful life of the leased equipment or property at the end of the lease term, and at least a life of one year.
In a lease agreement, this is the rate of return to the lessor.