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My company completed a sale-leaseback transaction with a buyout option. The lease has been paid off in 6 years, and now my boss wants to buy the equipment for the 20% of original sale-leaseback amount. This year the asset would be fully depreciated on the ledger. How do I account for the buyout transaction? Does the original asset come off the books and add the new asset at the amount of the buyout? Or add the buyout the original cost and depreciate the remaing $500k over what estimated life?

Submitted: 368 days and 5 hours ago.

Category: Tax

Value: $15

Status: AWAITING CUSTOMER ACTION

Philadelphia, Pennsylvania

Answer

Dear XXXXXXXXXXX -

Normally on a sale-leaseback, the equipment is sold and a gain is reported. The basis of the equipment is part of the sale transaction. At that point the equipment is off the books. During the lease term, you will have a lease expense deduction, but there will be no depreciation because you don't own the equipment.

When you purchase the equipment at the end of the lease, the equipment will again be added to your fixed asset list and you will begin the depreciation process all over again.

Accepts:
Expert:	Steven Meyerson, CPA
Pos. Feedback:	99.2 %
Answered:	11/21/2008

Certified Public Accountant (CPA)

CPA, Over 29 yrs experience w/individuals and small businesses. Masters in Tax, Divorce Specialist

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