Financing, leasing and Section 179
what changes when you do not pay cash.
A financed machine can generate a first-year deduction for its full cost, even though most of the price is paid over the following years. A true lease works differently. Here is how each is usually treated.
Not tax advice. Talk to your tax adviser or CPA about your situation. Information is current for the 2026 U.S. federal tax year (checked October 29, 2026); state rules differ.
You own it, so its full cost can count.
When you buy a machine with a loan or an equipment finance agreement, you own it. IRS Publication 551 defines cost as the amount you pay in cash, debt obligations, other property or services, so the financed part of the price is part of the machine's cost. If the machine qualifies and is placed in service this year, the Section 179 or bonus deduction can be based on its full cost, not only on the down payment and the payments made so far.
You rent it, so you do not depreciate it.
If you lease a machine and the lessor keeps ownership, Publication 946 says you generally cannot depreciate it. Lease payments are generally treated as a business expense when paid instead. Some contracts called leases, for example one that ends with a nominal buyout such as $1, may be treated as a purchase for tax purposes. How your contract is treated depends on its terms, so ask your adviser before you sign.
Hypothetical figures, labelled assumptions.
Assumptions: a used machining center costing $120,000, financed over 60 months with 10% down ($12,000), placed in service in December 2026, enough taxable business income to use the full Section 179 deduction, and a 24% federal income tax rate on the income it offsets. State tax, interest deductions and other factors are ignored.
- Deduction in 2026: up to $120,000 under Section 179.
- Federal tax that deduction could offset at the assumed 24% rate: about $28,800 ($120,000 x 0.24).
- Cash paid in 2026: the $12,000 down payment plus any payments due in December.
The deduction does not make the machine free: it moves the deduction into the year you buy it, and later years have no depreciation left on that machine. Your adviser can show you the real figures for your business.
Who finances machine tools.
See the machinery financing and leasing directory for machine builders' finance arms and equipment lenders, each with the page we checked, and the machine financing guide. Many lenders quote faster near year-end if you have the machine, price and seller identified.
The Section 179 guide.
Where these facts come from.
Published by Delta Arc, LLC · Editor: Michael Davis · Last reviewed October 29, 2026.
Not tax advice. Talk to your tax adviser or CPA about your situation. Information is current for the 2026 U.S. federal tax year (checked October 29, 2026); state rules differ.