FASB 13 Overview
There are essentially two classifications of leases:
1) Capital Lease
2) Operating Lease
The criteria used to determine lease classification is stated by the Federal Accounting Standards Board in statement 13 (FASB 13). In order for the lessee to "expense payments", the following criteria must be met.
1) The lease does not automatically transfer ownership of the asset to the lessee at the end of the lease term.
2) The lease does not provide a minimal or "Bargain Purchase Option" at the conclusion of the lease term.
3) The term of the lease is less than 75% of the estimated economic life of the leased property.
4) The present value of the lease payments cannot exceed 90% of the Fair Market Value (purchase price) of the equipment.
Please consult with your accountant to determine the tax treatment of your proposed lease.
