# Lease vs buy: who claims depreciation

The owner for tax purposes depreciates. In a true lease that is the lessor; in a lease that is really a purchase, it is you. General information, not tax advice. Talk to your tax advisor about your situation.

## Who claims what

| Structure | Who depreciates | What the user deducts |
| --- | --- | --- |
| Buy with cash or a loan | The buyer | Depreciation |
| True lease (fair market value or operating lease) | The lessor | Rent, if the equipment is used in the business |
| Lease with a nominal buyout, or another conditional sale | Usually the lessee, as owner | Depreciation, not rent |

[Publication 946](https://www.irs.gov/publications/p946), chapter 1; [Publication 535 (2022)](https://www.irs.gov/pub/irs-prior/p535--2022.pdf), chapter 3. The financing side is on GPU Lenders: [GPU lease vs loan](https://gpulenders.com/gpu-lease-vs-loan).

## Who is the owner

The one who bears the cost of ownership. You can depreciate leased property only if you keep the incidents of ownership: legal title, the obligation to pay for it, maintenance and operating costs, taxes, and the risk of loss, including loss of value through obsolescence. A lessor can depreciate even if the lessee maintains the equipment, unless the lessee must return the same property or its equivalent in value. A lessee can depreciate improvements it makes.

The label on the contract does not decide it. Signs of a conditional sale: payments that build equity, title after a set number of payments, payments for a short period that come close to the price, payments well above fair rental value, a purchase option at a nominal price, or part of the payments designated as interest. Payments under a conditional sale are not deductible as rent. Leveraged leases, with a lender to the lessor, may not be treated as leases; Rev. Proc. 2001-28 sets the IRS's guidelines for advance rulings.

## If you are the lessor

Section 179 is mostly closed. A lessor that is not a corporation can use it on leased property only for property it made, or a lease shorter than half the class life where its ordinary business deductions on the property exceed 15% of the rent in the first 12 months ([IRC 179(d)(5)](https://www.law.cornell.edu/uscode/text/26/179)). Bonus depreciation has no such rule.

A quick resale moves the placed-in-service date. If a lessor places property in service and sells it within three months while the user stays the same, the buyer is treated as placing it in service, no earlier than the last sale.

Rentals are generally passive. An activity whose average period of customer use is seven days or less is not treated as a rental activity ([Publication 925](https://www.irs.gov/pub/irs-pdf/p925.pdf)). Whether hourly GPU rentals fit that is a question for your advisor.

Lease end can bring depreciation back. Selling the equipment can make the depreciation taken ordinary income ([depreciation recapture](https://managedgpus.com/guides/accelerated-depreciation/depreciation-recapture)). For equipment lenders, the lessor-side page is [tax depreciation for GPU lessors](https://www.amcompute.com/gpu-lessor-tax-depreciation); the other rules are in the [accelerated depreciation guides](https://managedgpus.com/guides/accelerated-depreciation).

## Questions about leases

**Is a $1 buyout lease a lease for tax purposes?**

An option to buy at a nominal price is one of the signs the IRS lists of a conditional sale rather than a lease, so the lessee is usually treated as the owner. The whole agreement decides it.

## Planning to buy GPU servers?

- A call with our CTO about what you need
- Ballpark costs and timelines for your budget
- A straight answer if it’s not a fit

Prefer email? [hello@amcompute.com](mailto:hello@amcompute.com)

## Want to own GPU servers? We'll run them.

[Plan a deployment](https://managedgpus.com/guides/accelerated-depreciation/lease-vs-buy-depreciation#discuss)

Source: https://managedgpus.com/guides/accelerated-depreciation/lease-vs-buy-depreciation