About the Equipment Lease vs Buy Calculator
This equipment lease vs buy calculator compares the true cost of leasing a machine, vehicle or piece of technology with buying it outright. It puts both options on the same footing by converting every after-tax cash flow — lease payments, the purchase price, depreciation tax savings, maintenance and resale value — into today’s dollars.
Small business owners, finance managers and contractors can use it when a dealer offers a lease alongside a purchase price. The result tells you which option has the lower present-value cost and by how much, plus the net advantage to leasing (NAL) figure used in corporate finance.
Assumptions: lease payments are fully deductible business expenses, the purchase is depreciated straight-line over its tax life, cash flows are yearly and discounted at your after-tax cost of borrowing, and resale value is taxed on any gain over remaining book value. Accelerated write-offs such as Section 179 or bonus depreciation can make buying look better; check your situation with a tax adviser.
With the default inputs, the savings with the cheaper option is $887.35. Change any value above to recalculate instantly.
How to use the equipment lease vs buy calculator
- 1Enter the purchase price and the monthly lease payment quoted for the same equipment.
- 2Set the lease term and the tax depreciation life of the asset.
- 3Estimate what the equipment would sell for at the end of the lease term.
- 4Add any maintenance you would pay only as an owner, your tax rate and your after-tax cost of borrowing.
- 5Compare the present-value costs and check the cumulative chart.
Formula and method
Leasing costs the yearly lease payments (monthly × 12) less the tax they save, discounted back from the end of each year. Buying costs the full price today, reduced by the tax shield on straight-line depreciation (T × P ÷ life each year of the tax life), increased by after-tax maintenance, and reduced by the after-tax resale value at the end of the period.
After-tax resale value is S − T × (S − book value), so a sale above book value is taxed and a sale below it creates a deduction. The net advantage to leasing (NAL) is PV buy − PV lease: positive means leasing is cheaper. Yearly timing is a simplification; monthly lease payments made in advance would make leasing slightly more expensive.
- L
- Yearly lease payments
- P
- Purchase price
- D
- Yearly depreciation = P ÷ tax life
- M
- Yearly maintenance paid only when buying
- T
- Business tax rate
- r
- After-tax discount rate
- S_after
- After-tax resale value at year n
Worked examples
$50,000 machine vs $1,000/month lease for 5 years
After 25% tax, the $12,000 of yearly lease payments cost $9,000, worth $37,911 today at 6%. Buying costs $50,000 now, less $2,500 a year of depreciation tax savings, plus $750 a year of after-tax maintenance, less $7,500 after-tax resale value (the machine is fully depreciated, so the $10,000 sale is taxed). That totals $37,024, so buying saves about $887.
Truck with a 7-year tax life on a 4-year lease
After four years the truck’s book value is $51,429, so selling it for $40,000 creates a loss that saves tax, giving $42,400 after tax. Buying costs $82,149 in present value versus $83,488 for the lease, so buying is about $1,339 cheaper.
Short lease on fast-depreciating tech
Leasing costs $5,400 a year, or $3,780 after tax — $10,294 in present value over three years. Buying costs $14,732 after depreciation savings and the $12,000 resale, so leasing wins by about $4,438.
Frequently asked questions
Is it better to lease or buy business equipment?+
Buying is usually cheaper over the full life of equipment that holds its value and lasts longer than the lease. Leasing often wins for technology that becomes obsolete quickly, when cash is tight, or when the lease bundles maintenance.
Are equipment lease payments tax deductible?+
In most countries, payments on an operating (true) lease are deductible business expenses. Financing-style leases and purchases are depreciated instead. Confirm the treatment of your lease with an accountant.
What discount rate should I use for lease vs buy?+
Use your after-tax cost of borrowing — for example an 8% loan rate at a 25% tax rate is 6% after tax — because a lease is a substitute for borrowing to buy the equipment.
What is net advantage to leasing (NAL)?+
NAL is the present-value cost of buying minus the present-value cost of leasing. A positive NAL means leasing is cheaper in today’s dollars; a negative NAL means buying is cheaper.
How does Section 179 affect lease vs buy?+
Section 179 and bonus depreciation let US businesses deduct much of a purchase in the first year, which pulls tax savings forward and makes buying more attractive than straight-line depreciation shows here.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.