TRAC Leases...good or bad?
- Thread starter Marmino
- Start date
I may not be 100% right but As far as taxes go, If the lease has a $1.00 buyout at the end, then it is considered a purchase, not a lease and as such must be depreciated.
Now, if it is a lease with a residual of 10% or more you should be ok deducting the cost of lease payments in the year incurred.
Most leases will always cost more than an outright purchase. I beleive a person is better off on a purchase.
Now, if it is a lease with a residual of 10% or more you should be ok deducting the cost of lease payments in the year incurred.
Most leases will always cost more than an outright purchase. I beleive a person is better off on a purchase.
Hi,
I wanted to weight in on my understanding of TRAC leasing.
Terminal Rental Adjustment Clause or TRAC for short is a lease that allows the lessee and the lessor to determine the residual value of the vehicle at the end of the lease....
The lessor takes the depreciation along the way so that you can show the expense of the TRAC on the income side of your business..
It was set up in 1982 by the TEFRA act.....
The advantages of a TRAC are that you are not limited to the configuration nor the annual mileage...Meaning unlimited mileage...
Usually you run a TRAC for 48 to 60 months...and I have found that generally the 48 month leases runs out at about 25% of the original amount and 60 months at around 10-15%..
Example: TRAC for $50,000 for 48 months with a 25% residual.
At the end of the 48 months you return the vehicle and generallyl allow the leasing company to re-sell the vehicle...If it brings $12,500 then you owe them nothing...if it brings $13,500 then you pocket $1000...and if it brings $10,500 then you owe the difference.
Some TRAC leases allow you to purchase the truck and one leasing company I work with ( a biggy ) will allow you to set a 0% residual meaning they will forward the title to you at the end of the term.
I'm not offereing any tax advise here however the higher you set the residual the lower your payments are...and if you care for you vehicle during the term then generally the agreed residual will be met. (no guarantee though)
I also thing that you should weight carefully your decision to enter into this type of contract... consult a "good tax accountant" who understands this end of the tax code...
One other point, generally you can into a TRAC with little upfront money and some companies will give you an advantage if you add a full-service agreement package into the program...
Well thats my 3 cents worth .........
Frank in Pa.
"The Beast in the East"
I wanted to weight in on my understanding of TRAC leasing.
Terminal Rental Adjustment Clause or TRAC for short is a lease that allows the lessee and the lessor to determine the residual value of the vehicle at the end of the lease....
The lessor takes the depreciation along the way so that you can show the expense of the TRAC on the income side of your business..
It was set up in 1982 by the TEFRA act.....
The advantages of a TRAC are that you are not limited to the configuration nor the annual mileage...Meaning unlimited mileage...
Usually you run a TRAC for 48 to 60 months...and I have found that generally the 48 month leases runs out at about 25% of the original amount and 60 months at around 10-15%..
Example: TRAC for $50,000 for 48 months with a 25% residual.
At the end of the 48 months you return the vehicle and generallyl allow the leasing company to re-sell the vehicle...If it brings $12,500 then you owe them nothing...if it brings $13,500 then you pocket $1000...and if it brings $10,500 then you owe the difference.
Some TRAC leases allow you to purchase the truck and one leasing company I work with ( a biggy ) will allow you to set a 0% residual meaning they will forward the title to you at the end of the term.
I'm not offereing any tax advise here however the higher you set the residual the lower your payments are...and if you care for you vehicle during the term then generally the agreed residual will be met. (no guarantee though)
I also thing that you should weight carefully your decision to enter into this type of contract... consult a "good tax accountant" who understands this end of the tax code...
One other point, generally you can into a TRAC with little upfront money and some companies will give you an advantage if you add a full-service agreement package into the program...
Well thats my 3 cents worth .........
Frank in Pa.
"The Beast in the East"