That's very true, but if you complete a lease, you've already paid for it, you just don't get to keep it, if your going to pay for it? Why not just buy a truck then trade it in every few years, if you buy a house, would you tell the finance company they can keep it have you make the last payment?
Is lease/purchase ever a good idea?
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Aminal Heavy Load Member
- Nov 9, 2013
CrazyJ, I think you and Popeye are going about this a great way. It DOES set up a lot of common conceptions and mis-conceptions and raises very valid and seemingly simple questions; Why would you pay on a house for years and then tell the bank they can have it back after the last payment? That would be nutz!
Unfortunately, the simple questions in an employee/ employer context have VERY (gosh there really aren't enough buttons to push to emphasize that word enough here) complex answers when coming from an Independent Contractor/ Client relationship. That's what the legal nature of every L/ LP Op is to the Motor Carrier they lease to. It's considered a "Business To Business" relationship, not employee to employer and every rule under the sun is different for B2B and E/E. We operate under business laws of one business conducting business with another business. HR, Wage and Hour, Payments, Contractual Obligations of both Parties and mostly TAXES are totally different Laws.
So the seemingly common sense conundrum of "Why would you . . ." is a perfectly legitimate question, but the answer is would fill up TTR's server to answer fully. The short answer is gonna sound ridonkulous, but I tend to be viewed that way anyway so what the hell? LOL.
The primary reason is taxes, and what truck payments do to your General Ledger (company books). As an employee Driver, you don't keep company books. Some (insane) Independents don't either, and often wind up losing their shirts and wondering how that happened. It happened because they didn't make the transition from employee to Independent Business owner and thus still thought and did things like an employee. That will NEVER work as an Independent.
Profit and Loss Statements, Charts of Accounts, Asset and Liability Schedules - Dude the accounting is crazy complex compared to; how much is my check; what is the balance in my checkbook and can I pay my bills with it - which we ALSO have to keep up on both the personal side on what we pay ourselves AND the business side on the business itself. A loss can be a profit and a profit can be a loss. Credits are debits on one side but vice versa on a different side. You can depreciate a new truck you purchase, but not a used one, you can take 100% of a lease payment as an expense, but only an amortized portion of a conventional finance as an expense but you get to list it as an asset on your asset schedule which you don't in any lease situation . . . BUT if you refer to sub-section C of paragraph 1,712 of section 25,115 of chapter 114,789 of the tax code for THIS year you MIGHT be able to offset that with a credit from the debit on your P&L by standing on your head and spitting butter beans while barking at the only blue moon on a third Tuesday of a Leap year . . if you do it between 8AM and 2PM!!
"Is that central, eastern, pacific or mountain time? OH and Daylight Savings time or Standard time? And what if I'm in Arizona that doesn't honor daylight savings time so half the year it's in mountain time and half the year it's in pacific time and I'm based in South Carolina but I operate in Arizona a lot? Will THAT help if I have a variable rate on conventional financing and a fixed rate on a lease or vice versa and how does that apply if I'm in Ch .i. caaa. . . ggg . . .oo when the blue moon over Phoenix turns red in Indiana if the Notional Fuel Index fluctuates 15% and my Fuel Surcharge varied 12.2 pppuuuuhhhhcccceeennnn POW!! [head first sucks in then explodes].
Taps, Taps. Lights Out. Maintain Silence about the decks . . . daa, da, DAAA . . .
Yeah, it gets crazy complex and an accountant can tell you why a WHOLE lot better than I can and again; This isn't for everyone. Yeah, I can see why. LOL.
OH! One thing, though (back to the original house analogy), real estate always increases in value on the asset schedule as a fixed, but non-liquid asset but equipment always decreases in value and is disposable; but CAN be considered an asset if certain tests under RULE 742 . . .
POW, POW AND POW AGAIN!!!
"Is he dead yet?"
"Nope. ######## still keeps getting up."
"Danged!! Guess We'll just have to keep writing more Rules."
Have a good one and Be Safe . . . hire a good CPA!!Last edited: Feb 20, 2015
Tennesseahawk Thanks this.
Leasing can have it's advantages when compared to depreciation of the truck on a bank loan in some situations over a 4-5 year period. It is not the ugly monster that some O/O's make it out to be. It goes back and forth as which would be better for you. I was a little paranoid about leasing through any company that I pulled for, so I TRAC leased outside of the company. I had a almost zero balloon at the end, and a walk away clause. There are a hundred ways to finance a truck. Take the time to research what is in your best interests.
If you do a little research on leasing you will see that lease payments are typically lower than purchase payments. You are only paying for the part of the truck that you use (in theory) that is why there is such a high balloon payment. That is the value of the truck that has not been paid for.
Example lease payment on a 2016 Freightliner Cascadia:
Weekly lease payment $500 (give or take a few $$)
52 weekly payments = $26,000
3 year lease = $78,000 balloon payoff - $76K
4 year lease = $104,000 balloon payoff - $48K
Purchase price of new = $130K exluding finanace charges
So....no you haven't paid for it at the end of your payments. However you have gained the tax advantage of writing off each and every $$ of lease payment vs. amortization of a loan over a 5 year period and not gaining the same tax benefit.
Like I have said before - I did a lease and now I am doing a purchase. It isn't because the lease was a bad idea. I have reached the point where my accountant and I agree that with the capital equipment that is now owned by the company we can not be concerned about the tax benefit.
Most of the multi-million dollar trucking companies lease their company trucks. Do you really believe that they got to be that rich by making crappy decisions?
IT IS ALL ABOUT THE BUSINESS PLAN OR BUSINESS MODEL !!! IF YOU DON'T HAVE A WRITTEN BUSINESS PLAN OR BUSINESS MODEL - YOU MAY OR MAY NOT FAIL....BUT YOU ARE NOT OPERATING AT YOUR FULL POTENTIAL.
Just one man's opinion...CBayFisher Thanks this.
90% of steering wheel holders don't get it and never will. They will never get past the not owning the truck at the end of a lease. Who gives a rats, the truck is a tool to make me money, it is a monthly payment for equipment to do the job. It is an entry on a balance sheet.
It is about running a business and the profit and loss at the end of the year. Most drivers that lease are only worried about there being no coffee at the next 'J'.
Thanks for beating the drum popeye, maybe a few light bulbs will come on and the ignorant 'Flease' haters will get it.Tenn I See Trucker Thanks this.
I’ve been thinking about leasing for the last 6 months. I do work for a great company, driver friendly and around 50 years now.
It is a walk away and there is no balloon payment. Pay is only 1.20 a mile not including bonuses and fuel discount. They only have automatic freight shakers which I don’t care too own at all and while they rn me with great company miles 2800 too 3500 per week at .44 cpm I just feel I could make more money in lease then sell that truck at home the end for a down payment on a truck I actually want
All companies are going to pay you. You didn’t include his cost of the lease.The devil is always in the details.I have never done a LP but most of the ones I’ve read about making it work says the same things you have to keep it running since you have so many fixed costs and a lot of time on a weekly bases 1 week off with no revenue can put you in a hole you can’t get out of.So it seems it’s real easy to get burned out on constantly being under pressure of the usual high cost of a LP deal and in a lot of cases the inability to move the truck to a better opportunity
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