Important Information about Equipment Leasing Investing in a Self Directed IRA

Equipment leasing investing provides attractive benefits for all parties involved. For the individual, they do not have to maintain and purchase large pieces of machinery that may only be used seldom. For the investor, it provides some great tax benefits. The benefits for the leasing company are fourfold:

• Debt is lowered from the company balance
• Less expensive way to finance
• Helps with finding a purpose for equipment that the company no longer uses as often
• Opens up capital to be used for other purposes

Examples of Leased Equipment

There is a wide array of equipment that could be leased. The following is just a list of examples:

• Aircraft
• Computers
• Solar energy devices
• Construction equipment
• Cable television
• Oil drilling equipment
• Gym equipment
• Photocopiers

The options are endless, but it’s important to note that real property is not included in this list of investments.

The IRS and Equipment Leasing Investment

In order to comply with the IRS, investors in equipment leasing must provide 20% of the purchase price of the equipment and their involved risk must also be 20% to be eligible for the tax benefits of operating a leasing company. The IRS has many safeguards in place to regulate the rental of the equipment. Many of these guidelines help ensure that it is actually a lease and not a conditional sale.

The IRS carefully examines these transactions to make sure it is more than just a thinly veiled sale of equipment. So if you decide to just name your transaction a lease, it’s not going to work.

You will have to show that it passes an “economic viability test”. One test would be if the present value of the equipment stays the same or increases after the leasing period is over. Another example would be if the payments that the lessee makes on the equipment actually exceed the value of the equipment.

Other factors that would make the IRS consider it a sale includes:

• Does the equipment lose all value at the end of the lease?
• Does the lessee have the option to purchase the equipment at an exceptionally low price?
• Does the lessee have to repair and maintain their own equipment?
• Does the lessee keep the equipment at the end of the rental?
• Is a portion of the lease considered “interest”?

Other Benefits of Equipment Leasing

The obvious perk to equipment leasing is the tax benefits. The equipment also holds residual value at the end of the lease term. Other tax benefits include deductible interest, operating expenses, and depreciation.

Finding a Self Directed IRA that Offers Equipment Leasing

If you have knowledge and experience in a particular area of equipment that is eligible on the rental market, your IRA can own all or part of an equipment leasing business.

There are many companies that claim to offer self directed IRAs, but many of them are not truly self directed. This means that your SDIRA should not be restricted by anything but IRS rules and regulations. A truly self directed IRA custodian will offer equipment leasing investing among its list of investment options.

 

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