Decide whether to lease business equipment or buy it with cash or a loan. Enter the lease payments, the loan terms, the expected resale value and your tax rate; the calculator discounts every after-tax cash flow and shows which option costs less in today's money, plus the break-even resale value.
Last updated:
Equipment
$
$
What you could sell it for if you buy.
Lease
$
months
Also the length of the comparison.
$
Documentation or setup fees (not refundable deposits).
$
Return, wear or disposal fees.
Buy / finance
$
Set equal to the price for a cash purchase.
% / yr
months
$
Delivery, installation, loan fees.
$/ yr
Maintenance or insurance a lease would cover.
Tax & discount rate
%
Combined federal and state rate. 0 to ignore taxes.
% / yr
Enter your values to see the result.
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How to use the Equipment Lease vs Buy Calculator
Enter the equipment price and what it should be worth at the end of the lease term.
Enter the lease terms: monthly payment, term in months and any upfront or end-of-lease fees.
Enter the purchase terms: down payment, loan rate and term, fees and any upkeep you would pay as owner.
Set your tax rate, discount rate and depreciation method.
Press Compare to see which option is cheaper in present value, then review the yearly cash flows and break-even resale value.
How the lease vs buy comparison works
The calculator builds monthly after-tax cash flows for both options over the lease term and discounts them with a monthly rate (1 + annual rate)1/12 − 1.
Lease: upfront fees + monthly payments (paid in advance) + end-of-lease costs, each reduced by the tax rate because they are deductible.
Buy: down payment + loan payments + upkeep − tax saved on interest, upkeep and depreciation + resale value − tax on any gain over book value. If the loan is longer than the lease term, the remaining balance is paid at the end.
Result: the option with the lower present-value cost is cheaper. Loan payments use P = L × i ÷ (1 − (1 + i)−n).
These are the standard IRS general depreciation system rates for 200% declining balance. Computers and many vehicles are typically 5-year property; office furniture and most machinery are 7-year property.
When leasing or buying tends to win
Leasing tends to win when…
Buying tends to win when…
Equipment becomes outdated quickly (tech, IT)
Equipment lasts well beyond the lease term
Cash is tight or borrowing is expensive
You can use large first-year deductions
The lease includes maintenance and support
Resale values hold up well
You need flexibility to upgrade or return
You use the equipment heavily (no usage limits)
Frequently asked questions
How do you compare leasing and buying equipment?
List the after-tax cash flows of each option over the same period and discount them to today with your cost of capital. Leasing has payments (usually tax-deductible as an operating expense). Buying has the down payment, loan payments, upkeep, tax savings from interest and depreciation, and the resale value at the end. The option with the lower present-value cost is cheaper.
Are lease payments tax deductible?
For a true operating lease of business equipment, payments are generally deductible as a business expense in the US. Some agreements, such as $1 buyout leases, are treated as purchases for tax purposes, so you depreciate the equipment instead. Confirm how your lease is classified with your accountant.
What is Section 179 and how does it affect lease vs buy?
Section 179 of the US tax code lets businesses deduct the cost of qualifying equipment in the year it is placed in service, up to an annual limit that is adjusted for inflation. A large first-year deduction makes buying more attractive. Choose the 100% year-1 option to model it, and check the current year's limit before relying on it.
What discount rate should I use?
Use your after-tax cost of borrowing or your required return on capital. Many analysts use the after-tax interest rate of the loan you would take, which for an 8.5% loan and a 25% tax rate is about 6.4%. A higher rate favors options that delay payments, often leasing.
Why does resale value matter so much?
When you buy, you keep the equipment's remaining value; when you lease, it goes back to the lessor. The break-even resale value shows how much the equipment must be worth at the end for buying to win, which is a useful check if you are unsure about future prices.
Which is better for cash flow?
Leasing usually needs little money up front and has predictable payments, so it preserves cash. Buying needs a down payment or the full price but often costs less over the life of the equipment, especially if you keep it longer than the lease term. This calculator measures total cost; your cash position may still favor leasing.
Is this tax or financial advice?
No. It is a planning estimate using simplified tax treatment (deductions are taken when the cost occurs and depreciation at each year end). Tax rules, limits and lease classification vary, so review important decisions with a qualified accountant.
Are all the tools on FreeToolCabin tested for quality and accuracy?
Yes! Every tool on our site undergoes automated Q/A testing in real browser environments to ensure high precision, correct output, and zero errors. If you happen to spot a bug or have a suggestion, please contact us at [email protected] and our team will review it right away.