A $1 buyout lease works like a purchase spread over time: the shop makes a fixed payment every month of the term, then pays one dollar and takes title. An equipment loan reaches the same ownership, with the shop holding title from day one. The real differences are cash at signing and the total paid. Orchardwood Lending forwards both quotes to funding partners for their own terms.
An Athens, Tennessee guide to $1 buyout leases, fair market value leases and equipment loans, with an invented skid steer comparison and questions for a CPA.
How a $1 buyout lease works and who owns the machine
In a $1 buyout lease, the leasing company buys the machine from the dealer and holds title while the shop makes its payments. The shop runs the machine, insures it, maintains it and pays any property tax on it, just as an owner would. After the last payment, the shop pays one dollar and the title moves to the business.
Because ownership at the end is all but certain, this structure is sometimes called a capital lease or a conditional sale. The paperwork still says lease, and that label matters in two places: the lessor can ask for one or two payments in advance instead of a down payment, and the lease document controls what happens on a late payment or an early payoff.
A shop that wants the machine for its full working life gets the same end point as with a loan. What changes is the cash needed at signing, the payment, and the total, which the invented comparison further down works out.
Construction (NAICS 23) counted 62 establishments with paid employees in McMinn County, TN in 2023, and Specialty Trade Contractors (NAICS 238) accounted for 39 of them (County Business Patterns). Nonemployer Statistics list 630 construction businesses with no paid employees in the county for 2024, a separate count from the employer figure. Contractor equipment and payroll are covered on the construction page.
$1 buyout lease vs fair market value lease
A fair market value lease runs on a different idea. The shop pays to use the equipment for the term, and at the end it can return it, renew the lease, or buy it at whatever it is worth then. Because the lessor expects the machine back with value left in it, the monthly payment can be lower than on a $1 buyout lease for the same machine.
| Lease type | End of term | Fits equipment that |
|---|---|---|
| $1 buyout | Shop pays $1 and owns it | Will be kept and run for many years |
| 10% purchase option | Shop pays 10% of the original price to own it | Will likely be kept, at a lower payment |
| Fair market value | Return, renew or buy at the value then | Goes out of date, such as diagnostic or computer gear |
The fair market value buyout is the unknown. A machine that holds its value can cost a lot to buy at the end, so a shop that already knows it will keep the equipment may come out ahead with the $1 version. A shop that replaces gear every few years may prefer to hand it back.
Ask the lessor to state in writing how fair market value will be set, and who chooses the appraiser.
Comparing a lease payment with an equipment loan payment
The fair way to compare a lease with a loan is to add up everything paid over the term, the cash at signing included, and then look at the monthly payment separately.
| Invented option | Cash at signing | Monthly payment | Total paid |
|---|---|---|---|
| $1 buyout lease, 2 payments in advance | $2,910.00 | $1,455.00 | $87,301.00 |
| Loan with $6,800 down, annual rate 9.25% | $6,800 | $1,277.85 | $83,471.00 |
The invented lease needs $3,890.00 less cash at signing, but its payment runs $177.15 a month higher and it costs $3,830.00 more over the full term in this invented case. The two advance payments are the first and last of the 60, so they are part of the total, not added to it.
Those invented results flip easily. A lower lease payment, a higher loan rate or a bigger down payment on the loan each change the outcome, so run your own quotes. Loan structures for machines are explained on the equipment financing page, and longer fixed-payment options on the term loan page.
Tax and accounting questions to take to a CPA
How a lease is booked and taxed is a question for the shop's CPA, not the lessor and not a funding partner. The answers can change which option costs less after tax, so bring these to the accountant with both quotes in hand.
- Will this $1 buyout lease be treated as a purchase for tax purposes, so the shop depreciates the machine?
- Does the shop qualify for Section 179 expensing or bonus depreciation in the year the machine goes into service?
- How will the lease or the loan appear on the balance sheet under current lease accounting rules?
- How does sales tax apply: on the full price at the start, or on each lease payment?
- Is any part of the lease payment deductible as interest, and how is that portion figured?
A CPA may also point out timing: equipment placed in service late in the tax year can still count for that year. None of this changes the lessor's or the partner's terms, but it can change which offer is better for the business.
By Orchardwood Lending · Updated
