TRAC Lease vs Commericial Finacing? How do write offs differ?

No one. You didn't specify the terms at end of lease. I was presenting a typical example of what is often called a lease but in reality is not under tax law.

 

Well that didn't answer the question at all. But thanks for clarifying that.

 

okay, please explain how a TRAC lease is not a "true lease" if written properly?

IRS True Lease Guidelines

IRS Revenue Procedures 2001-28 and 2001-29, issued in May 2001, specify that a transaction must satisfy the following four criteria to be classified as a true lease. If a transaction qualifies as a true lease, the lessor is deemed the owner of the asset and receives all depreciation and tax benefits. Furthermore, the rental payments are fully taxable for the lessor and deductible for the lessee.

1.The lessee does not have an option to purchase the asset for less than FMV.
2.The expected residual value is at least 20% and the lessor bears all residual risk.
3.The leased asset must be general-use property and have an estimated remaining useful life at the end of the lease equal to at least 20% of the original estimated useful life. 4.The lease must satisfy the IRS requirements for Profit Exclusive of Tax Benefits, Cash Flow, and Minimum Equity Investment.


IRS Code §7701(h)(1) provides that in the case of a qualified motor vehicle operating agreement that contains a terminal rental adjustment clause (a TRAC lease), the agreement is treated as a lease if (but for such terminal rental adjustment clause) the agreement would be treated as a lease for federal income tax purposes and the lessee is not treated as the owner of the property subject to the agreement during the period the agreement is in effect. What this means is that, but for the TRAC provision, the lease must meet the true lease guidelines, which prohibit bargain purchase options.