Tax advantage may come with leasing medical equipment

As medical technology is ever-changing and new equipment enhancements are developed, renting equipment is a logical choice for several reasons. Among them, equipment leasing can keep a provider’s balance sheet intact, as monthly equipment lease payments can be classified as operating expenses. This also would allow the provider to benefit from tax deductibility.

Capital consideration

According to industry research, more than $3 billion of medical equipment was leased last year in the United States. In its simplest form, the lessor purchases the equipment and then rents it to the lessee. At the end of the lease term, the lessee has the following choices:

• Buy the equipment

• Re-lease the equipment

• Rent new equipment

• Return the equipment

The worth of medical equipment does not come from owning it, but rather from the results of its use. With renting, there are no large down payments so the lessee’s capital reserve remains intact. Equipment is also more easily attainable than from bank financing, which requires extensive documentation and even personal guarantees. Most any piece of medical equipment can be leased, including CT scans, surgery tools, lab testing machines, X-ray machines, heart-rate monitors and sonograms.

The benefits

Among the other benefits of leasing medical equipment are:

Flexibility. As the provider’s practice grows and equipment technology increases, leasing allows for the provider to easily add to or upgrade their packages. It is important to build in upgrade features at the inception of the lease. Installation, maintenance and other services also can be added to the lease.

Speed. Unlike using bank financing, leasing can provide the needed equipment in a matter of days. Typically, a one-page lease agreement is executed and approval can occur in a matter of hours. It often takes bank loan committees several weeks to approve an equipment loan.

Tax advantages. An operating lease (also known as a true lease) generally allows the lessee to write off 100 percent of lease payments made during the year. The equipment write-off is tied to the lease term, which can be shorter than Internal Revenue Service depreciation schedules, resulting in larger tax deductions each year. The deduction is the same every year, which simplifies budgeting.

Maintaining capital reserves. Leasing provides access to the equipment and tools needed today while spreading out all the payments over time. This provides a cash reserve for day-to-day expenses. Since a true lease is not a long-term obligation, it will not show up on the balance sheet, so the company will be more attractive to a conventional lender when or if one is needed in the future.

A physician starting a practice or even acquiring one can benefit from entering into an equipment lease. Purchasing a medical equipment package can cost several hundred thousand dollars. Leasing it provides budgetary, tax, cash flow and upgrade benefits.

Kent Harlan, CPA, is owner of Ozarks Capital Funding. He can be reached at kenth@ocflink.com.[[In-content Ad]]