Fair Market Value Lease: Rent It, Return It, or Buy It
A fair market value lease is the true lease. You are renting the equipment, not buying it, and the lessor keeps the ownership risk. That makes it the structure with the most flexibility at the end of the term and the least equity during it.
How FMV lease pricing works
Instead of an amortizing APR, FMV leases are priced with a rate factor: a fixed amount per $1,000 of equipment cost, per month. The factor bakes in the lessor's cost of money plus their bet on what the equipment will be worth when you hand it back. Our calculator models a default factor of 25 per $1,000, and real quotes move around depending on equipment type, term, and credit.
Because the lessor expects to get a valuable asset back, part of the cost sits in their residual assumption rather than in your payments. In exchange, you sign up for usage rules: mileage caps on trucks, hour limits on machines, and condition standards at return. Beat up the equipment and the excess wear charges come out of your pocket.
Who it fits, and who it does not
Good fit
- The equipment depreciates fast or goes obsolete quickly
- You refresh your fleet on a fixed cycle
- You want a clean exit with no resale hassle
- Fully deductible payments matter more than building equity
Probably not
- You plan to run the equipment for a decade
- You rack up heavy miles or hours that blow past usage limits
- You want an asset on your books, not a rental
Tax treatment
FMV lease payments are generally 100% deductible as an operating expense in the year you make them, which keeps the bookkeeping simple.
The trade-off: no Section 179 deduction and no depreciation, because you never own the asset. If ownership deductions matter to your business, compare this against an equipment loan or a $1 buyout lease with your tax professional.
End-of-term options
- Return the equipment and walk away, subject to condition and usage rules
- Buy it at its fair market value, appraised at that time
- Extend the lease, often at a reduced monthly rate
Worked example: $85,000 used semi truck
- Equipment price (semi truck, 5 years old)
- $85,000
- Down payment (10%)
- $8,500
- Amount the factor applies to
- $76,500
- Rate factor (calculator default)
- 25 per $1,000 per month
- Monthly payment
- $1,912.50
- Total of 60 payments
- $114,750
- Ownership at the end
- None, unless you buy at market value
At the default factor, the FMV lease is not the cheapest way to run this truck; it is the most flexible. Lessor quotes vary widely, so always ask what rate factor you are being charged and compare the total dollars against the other structures.
Pros and cons
Pros
- Cleanest exit of any structure: hand back the keys
- Payments generally fully deductible as an operating expense
- No resale risk if the market for the equipment craters
- Easy fleet refresh on a predictable cycle
Cons
- Zero equity after years of payments
- Mileage, hour, and condition rules with real penalties
- Buying at the end means paying fair market value on top of everything
- Rate factors are opaque; always convert the quote to a total cost
Fair Market Value Lease FAQ
What is a lease rate factor?
A rate factor is the monthly charge per $1,000 of equipment cost. Multiply the balance by the factor divided by 1,000 and you have the payment: $76,500 at a factor of 25 costs $1,912.50 per month. It is not an APR, so compare total dollars, not factors.
What is the difference between an FMV lease and a TRAC lease?
A TRAC lease is only for vehicles over 10,000 lbs, has a residual fixed at signing, and shares the resale risk with you. An FMV lease works on almost any equipment, the residual floats with the market, and the walk-away option is real.
Are FMV lease payments tax deductible?
Generally yes, as an operating expense in the year you pay them. You give up Section 179 and depreciation because the lessor owns the asset. Your tax professional can confirm the treatment for your situation.
Can I buy the equipment at the end of an FMV lease?
Yes, at its fair market value at that time, which is where the name comes from. If the equipment held its value well, that price can be steep, so factor the likely buyout into your decision up front.
Compare related structures
TRAC lease
For vehicles over 10,000 lbs, with a buyout fixed at signing.
equipment loan
The ownership alternative: higher payment, real equity.
See It in Action
Our equipment payment calculator models this structure directly. Pick it from the finance structure options and watch the payment change.
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