Accurate Lease vs. Buy Calculator

Preliminary Information

• Price of asset — The final negotiated purchase price before taxes or fees.
• Description of asset to be bought or leased (optional) — The description appears on the printed report.
• Prospective buyer or lessee (optional) — The name appears on the printed report.
• Discount rate, cost of capital, or inflation rate (optional) — The calculator uses the discount rate to perform a present-value analysis. You may want to enter zero first, review the results, and then enter a rate to compare it with the first calculation. What rate should you enter? There is no single correct answer, but entering an assumed inflation rate is often reasonable. The purpose of this option is to present results in “today’s dollars.”

• Est. annual appreciation (+) / depreciation (-) rate (optional) — An asset may depreciate (decrease in value, such as a car) or appreciate (increase in value, such as a building or land). If you want to assume a rate, check the box and enter the rate. However, you do not need to enter a rate. See “estimated resale value” below.
• Marginal tax rate on ordinary income (optional) — For an after-tax analysis, enter your marginal tax rate. You may want to set this to “0” for the first calculation, then set the option again to see the impact of taxes.
• Marginal tax rate on sale of asset (optional) — If tax will be due on the proceeds from selling the asset, enter the projected tax rate.
• Property tax rate — Some jurisdictions collect property tax on assets. To include property tax in the analysis, enter the rate as a percentage of the asset’s value. If you do not know the rate but know the tax amount, you can use the percentage calculator #1 to calculate the rate. The tax amount increases or decreases each year, based on the annual fair market value. (The calculator determines the FMV.)
• Property tax on purchase — If the “property tax rate” is greater than “0.0%” and the tax is levied on the purchase, select “Yes”; otherwise, select “No.”
• Property tax on lease — If the “property tax rate” is greater than “0.0%” and the tax is levied on the lease, select “Yes”; otherwise, select “No.”

Purchase

• Sales tax on purchase — Enter the tax rate used to calculate sales tax.
• Will sales tax be financed (optional) — If you want the sales tax amount added to the loan amount, answer “Yes.”
• Purchase down payment (optional) — If you plan to make a down payment, enter it here. To base the down payment on a percentage, use the percentage calculator #3.
• Annual loan rate (optional) — The annual interest rate of the loan.
• Number of loan payments (optional) — The expected number of loan payments.
• Loan payment — The periodic loan payment amount. If you select the checkbox, enter the payment amount; otherwise, the calculator computes it.
• Payment frequency (optional) — The loan’s payment frequency. This frequency must match the lease payment frequency.
• Estimated resale value or FMV at end of financing — Enter an estimated resale value for the end of the finance term. Alternatively, if you entered an “annual appreciation (+) / depreciation (-) rate” in the Preliminary Information, the calculator will compute the ending FMV.
• Percent of interest that is deductible — Enter a percentage if interest is tax-deductible. Generally, this is either 0% or 100%.

Lease

• Periodic lease payment amount — The negotiated regular lease payment.
• Number of lease payments — The lease term expressed as the number of scheduled payments.
• Payment frequency — The lease payment frequency. This setting must match the loan payment frequency.
• Sales/Use tax rate (optional) — The sales tax rate for the lease. Enter 0 for no sales tax.
• Lease sales tax paid when — For this analysis, the calculator assumes sales tax is paid as an up-front lump sum. If your lease is different, set the option according to your lease terms.
• Taxable capitalized costs and fees (optional) — Enter the total of all taxable fees.
• Refundable security or lease deposit (optional) — Enter the amount the leasing company will refund after the lease (if any).
• Non-refundable acquisition costs, deposits or fees (optional) — Enter all fees that are not taxable and not refundable. (This does not include periodic lease payments.)
• Miscellaneous annual lease expense (optional) — Enter any annual lease expenses not included in the lease payment.
• Termination fee or Turn-In fee (optional) — If the lease has a termination fee, enter it here. If you plan to purchase the asset at the end of the lease, enter the “end-of-lease option price” instead.
• End-of-lease option price (residual value) — If you expect to purchase the asset, enter the purchase price. Your lease agreement specifies this amount.

Business Rules

• Percentage used for business — Business analysis requires determining what portion of the asset’s use is for business. (If the analysis is not for business purposes, enter “0%”.)
• Section 179 Expense (optional) — Some assets used by a business may be expensed up to certain limits. If you expect to expense the cost, enter the deductible amount. It may or may not equal the full asset cost. See IRS Publication 946.
• Will you depreciate this asset — If you do not take a Section 179 deduction for the full price, you may be able to claim depreciation. For background, review the IRS publication noted above and the MACRS Depreciation Calculator.
• Depreciation method used (optional) — Depreciation (for businesses) is a deduction on the finance side of the analysis. It can significantly reduce the total cost. Depreciation rules in the United States are complex, and the correct method depends on the asset type. IRS Publication 946 explains the choices and provides guidance.
  • For automobiles (U.S.) you may, in many cases, select the GDS 200% DB method, a 5-year property class, a half-year IRS convention, and set “qualified asset” to “yes.” There are exceptions.
  • If you prefer a simpler approach and still want to include depreciation, select the method “ADS Straight Line,” choose an appropriate recovery period, and enter “no” for the remaining options. This will include depreciation, though it may understate it in the early years of the loan.

• Property Class (GDS) — Your selection depends on the asset. IRS Publication 946 will guide your choice.
• Recovery Period (ADS/SL) — The useful life of the asset. Set the depreciation method to “ADS Straight Line” to access this option.
• IRS Convention — The conventions define when the recovery period begins and ends. The correct choice depends on the asset being financed.
• Is the asset a listed property — Listed property is any of the following, per IRS Pub. 946, p. 51 (Feb. 2024):

  • Passenger automobiles (as defined later).
  • Any other property used for transportation unless it is an excepted vehicle.
  • Property used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video-recording equipment).

• Is the asset a qualified asset — If the asset qualifies, select the special allowance percentage.
• Is the asset a vehicle (listed property must be “yes”) — When set to “Yes,” this option enables the rules governing vehicle depreciation, including maximum deduction limits.

For more information about depreciation, see this page.

What do you think of this lease vs. buy calculator? Did it help you evaluate your decision? Your feedback is welcome and helps improve both the calculator and the documentation.

You can provide comments in the area below.