Capital Lease:
This lease is treated on your books much the same as owning. Tax Rule 179 may apply to your situation. Some owners feel that they must have their vehicles on the books as an asset, yet they need the cash advantage of a lease payment. This lease offers both.
TRAC Lease, or Terminal Rental Adjustment Clause: (Open End)
This lease is a true operating lease for tax purposes, which allows the Lessee to expense the entire lease payment. However, the residual value reflects the anticipated lease-end wholesale value and the overall condition and mileage will affect the final sale price.
The residual value is agreed upon by both parties at lease inception and will reflect a low percentage of the vehicles/equipments initial capitalized cost. However, you have the final say as to where you would like the residual set as long as it’s in a realistic realm of the vehicles/equipments actual value. If the final sale price is greater than the residual value, the gain will be returned to you.