What type of lease retains the tax benefits of ownership and the responsibility for maintenance?

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What type of lease retains the tax benefits of ownership and the responsibility for maintenance?

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What type of lease retains the tax benefits of ownership and the responsibility for maintenance?

Explanation & AnswerSolution by a verified expert

Explanation

A tax oriented lease retains the tax benefits, maintenance and depreciation expense in the hand of the lessor. The lease is considered as a tax-oriented lease if it fulfils the required guidelines laid by the internal revenue service (IRS) regarding leases.
Generally, all the operating leases are tax-oriented leases as the duration of the operating lease agreement is lower than the estimated economic life of the asset and the lessee is required to hand over the asset to the lessor after the completion of the lease term in the same condition as it was at the time of commencement of the lease. Therefore, the lessee is not given the ownership of the asset leased in the agreement and hence, the rights of claiming depreciation and maintenance expense for gaining tax benefits retains with the lessor.

Verified Answer

A tax-oriented lease retains the tax benefits on behalf of the asset in the hands of the lessor as the ownership of the asset remains with the lessor and he/she has to bear the tax, other maintenance and depreciation expenses.

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