Finance Leases

A finance lease, sometimes called a capital lease, is much like a loan collateralized by equipment, but title to the equipment does not pass to the lessee until the last payment, usually a token amount, is made. Since the monthly payments fully amortize the cost of the equipment, they can be higher than the monthly payments for an operating lease. The lessee depreciates the asset as if it were the owner and books the obligations as it would a loan, for both book and tax accounting purposes.