Saturday, December 02, 2017

Calling all tax "leasing" experts


Today's magic word of the day, if the final tax bill has either of (a) the lower pass-through rate (it will) and (b) the one-year corporate rate cut delay (who knows), is LEASING. There will be a lot of "leasing" going on, take my word for it.

UPDATE / CLARIFICATION: A friend has forwarded to me an interesting analysis of the tax bills' effect on equipment leasing, which has pluses and minuses that are still unknown given uncertainties about the final legislation. Limiting interest deductibility, for example, could worsen the tax analysis of equiment leasing in some scenarios.

I didn't mean to address, in the above comment, how actual leasing in the economy would be affected by the tax legislation. Leasing in that sense is a finance method for particular actual & substantive transactions, and I haven't attempted to analyze how it works out against other methods. Obviously there may be tax reasons for using leasing, rather than something else, as one's formal structure, but (at least in the standard case) it's a function of actual business deals, typically involving new investment.

What I meant by "leasing" in the above, and the reason I used scare quotes, is because I meant to refer to pure tax planning transactions - such as:

1) One's left hand "leasing" something to one's right hand. An example would be a law firm, under the House bill's passthrough bills, forming a real estate partnership to lease the building to the service partnership,

2) Sale-leasebacks to transfer title to taxpayers that can better use the expensing deductions, and

3) Under the Senate bill, the use of leases and subsequent sale or purchase option to take maximum advantage of the 35% corporate rate in 2018 versus the 20% rate in 2019.

In sum, leasing may or may not be helped by the tax legislation - but "leasing" WILL be helped.

1 comment:

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