Leasing vs Owning Medical Equipment: Tax Benefits Compared

Medical equipment is a significant investment for healthcare providers, and deciding whether to lease or buy (own) such equipment can have major financial implications. One crucial aspect of this decision is how each option affects your taxes. Leasing and owning are treated differently under U.S. tax laws, influencing deductions and overall costs.

This article provides a comprehensive comparison of the tax benefits of leasing versus owning medical equipment in the United States, with current information as of 2025.

We’ll break down how deductions work for each option, explain concepts like depreciation and Section 179 expensing, clarify the difference between operational and capital leases, and answer common questions. The goal is to help you make an informed decision that optimizes tax savings while considering your practice’s needs.

Leasing vs. Owning Medical Equipment

Leasing and owning represent two distinct ways to acquire medical equipment, each with its own financial and tax implications:

Leasing means you rent the equipment for a specified period. You make regular lease payments to a leasing company (the lessor) in exchange for using the equipment. Ownership remains with the lessor during the lease term.

At the end, you may have options to return the equipment, renew the lease, or purchase the equipment at fair market value (or a predefined price, depending on the lease agreement). Leasing often requires little or no upfront payment and provides flexibility to upgrade equipment frequently.

From a tax perspective, standard lease payments are generally treated as operating expenses that can be deducted from business income. However, since you don’t own the asset (in an operating lease), you cannot claim depreciation on it. We will explore exceptions (such as certain finance leases) later.
Owning (buying) means you purchase the equipment outright or through financing (a loan). The equipment becomes an asset on your balance sheet and you assume full ownership responsibilities.

This typically involves a larger upfront cost or a down payment if financed. Owning allows you to use the equipment indefinitely and eventually resell or dispose of it as you wish.

For taxes, ownership opens up deductions through depreciation (spreading the cost over the equipment’s useful life) and special provisions like Section 179 expensing or bonus depreciation, which can let you write off a large portion or even the full cost of the equipment in the first year.

Additionally, if you took out a loan to buy the equipment, the interest on the loan is tax-deductible as a business expense in many cases. Owning thus provides powerful tax benefits, but it also comes with the responsibility of tracking depreciation and potential tax implications when the asset is sold or no longer used.

In summary, leasing is like renting – easier on cash flow and simple in terms of annual deductions – while owning is an investment that can yield substantial tax write-offs via depreciation and expense.

The best choice depends on your practice’s financial situation, tax strategy, and equipment needs. Next, let’s clarify an important detail about leases: the difference between operating and capital leases, which affects how they’re treated for tax purposes.

Operating vs. Capital Leases (Finance Leases)

Not all leases are the same. In accounting and tax terms, leases are classified as either operating leases or capital leases (also known as finance leases). This distinction is important because it determines who is considered the owner of the equipment for tax purposes, thereby affecting which deductions are available.

Operating Lease (True Lease): An operating lease is essentially a rental agreement. The lessee (you, the medical practice) pays to use the equipment for a term, but does not assume ownership risks or rewards.

For tax purposes, operating lease payments are treated as ordinary business expenses. You can deduct the full amount of each lease payment in the year it’s paid as an “ordinary and necessary” business expense, reducing your taxable income. You do not claim depreciation or Section 179 on the equipment, because you don’t own it – the lessor remains the owner.

At the end of an operating lease, you typically return the equipment or negotiate a new lease. Operating leases are common when you want flexibility to upgrade frequently and avoid being stuck with obsolete equipment. The tax benefit here is the simplicity – a 100% deduction of lease payments – but you forgo the ability to take depreciation deductions or immediate expensing on the equipment.
Capital Lease (Finance Lease): A capital lease is structured more like a loan; it’s a lease in form, but for practical purposes you assume many attributes of ownership. In a capital lease, the agreement often includes terms like a bargain purchase option (for example, the ability to buy the equipment for $1 or a nominal amount at lease end) or covers most of the equipment’s useful life.

Essentially, a capital lease transfers the risks and benefits of ownership to the lessee. For tax purposes, if a lease is deemed a capital lease (a $1 buyout lease is a common example), the IRS treats it as a purchase. This means you, the lessee, are considered the owner of the equipment in substance.

You can then take the same deductions as an owner: you are eligible to claim depreciation on the equipment and can potentially utilize Section 179 expense or bonus depreciation on the asset’s cost. In other words, with a finance lease, you get similar tax benefits to buying, even though you’re making “lease” payments.

However, in this scenario you cannot deduct the entire lease payment as an expense; instead, you deduct the interest portion of each payment (like interest on a loan) and depreciate the equipment’s cost over time. At the end of a capital lease, you typically gain title to the equipment (after a nominal final payment) or have already paid most of its value through the lease terms.

Why this matters: If you are leasing medical equipment, check the lease type. A true operating lease offers simplicity (deducting payments) but no depreciation write-off. A capital lease might allow you to take advantage of generous tax deductions like Section 179, much like an outright purchase, because for tax purposes it’s as if you bought the equipment.

Generally, operating leases are favored for short-term use or rapidly changing technology, while capital leases are chosen when eventual ownership is desired and tax benefits like depreciation are a priority. The rest of this article will focus mostly on the typical scenarios: operating leases (no ownership) versus purchases (ownership), since capital leases fall in between those two in practice.

Tax Benefits of Leasing Medical Equipment

Leasing medical equipment (under an operating lease arrangement) can provide several tax advantages. Here are the key tax benefits and considerations when you lease:

Immediate Deduction of Lease Payments: Lease payments are generally fully tax-deductible as an operating expense in the year they are paid. This means every dollar you spend on your monthly or quarterly medical equipment lease can be written off against your practice’s income for that year.

Deducting lease payments lowers your taxable income, which can reduce the taxes owed. For example, if your clinic pays $1,000 a month to lease an ultrasound machine, you could deduct $12,000 for the year as a business expense. This provides a straightforward, easy way to get tax relief, without the need to deal with depreciation schedules.

In essence, leasing uses pre-tax dollars to acquire the equipment’s use – you expense the cost as you go. This is in contrast to buying (without special expense), where you’d pay cash or take a loan for the equipment and then recover the cost slowly through depreciation. The ability to deduct lease payments can improve cash flow by reducing tax liability each year of the lease.
Lower Taxable Income Each Year: Because lease payments are expensed, leasing keeps taxable income lower over the duration of the lease. This steady stream of deductions can be beneficial if you want to match the equipment’s cost to its use.

For many small practices, consistent annual expenses may be easier to manage than a large one-time deduction. It’s worth noting that for income tax purposes, there’s no concept of “amortizing” an operating lease cost beyond simply expensing the payments. This can simplify bookkeeping and tax preparation.
No Depreciation Tracking or Complexity: When you lease, you don’t own the asset, so you do not record it on your tax depreciation schedule. This can simplify accounting – you don’t need to calculate depreciation or worry about the equipment’s salvage value or class life. All tax handling is through the lease expense.

This is an advantage for those who prefer not to deal with the complexity of depreciation methods and yearly depreciation schedules. Essentially, the tax treatment of an operating lease is straightforward: it’s treated like a rental of business property.
No Depreciation Recapture on Disposition: One often overlooked tax benefit of leasing comes at the end of the equipment’s use. If you own an asset and later sell it for a gain (or even if you trade it in), the IRS may require you to pay back some of the tax benefits you claimed from depreciation, in a mechanism called depreciation recapture.

Depreciation recapture means that if the sale price of equipment you owned exceeds its remaining depreciated value (tax basis), the previously deducted depreciation is recaptured as taxable income (up to the amount of gain). This can create a tax bill when you dispose of owned equipment that has been fully or partially depreciated.

With a lease, this risk is eliminated. Since you never claimed depreciation, there’s no recapture to worry about. At lease end, you generally return the equipment to the leasing company or buy it at market value if you choose – either way, there’s no tax event for you from returning leased equipment.

This predictability can be a relief for businesses that frequently update their medical devices; you won’t face surprise taxes for trading in an old machine.
Option to Use Section 179 via Certain Leases: Typically, Section 179 (discussed in detail later) is a benefit of purchasing equipment. However, if your lease is structured as a capital lease or includes a $1 buyout clause, effectively making it a financed purchase, you may still qualify to claim a Section 179 deduction on the equipment even during the lease term.

In a standard operating lease without ownership, Section 179 cannot be used by the lessee, since you haven’t actually purchased the equipment. But many equipment financing companies offer “lease-to-own” arrangements that are Section 179-friendly – you lease the equipment and still take the tax write-off as if you bought it.

For example, under a $1 buyout lease (a type of capital lease), you could deduct the full cost of the equipment in the first year under Section 179, even though you are paying for the equipment over time. This gives you the best of both worlds: financing the equipment through lease payments while reaping the upfront tax benefit of a purchase.

Important: Section 179 on leased equipment applies only if the lease is a finance lease where you’re considered the owner. Operating leases do not qualify for Section 179 expense. Always confirm with your leasing provider and tax advisor if a lease arrangement will allow a Section 179 claim.
Sales Tax and Other Benefits: While not an income tax benefit, leasing can offer a sales tax advantage in some states. If you buy equipment, many states require paying sales tax on the full purchase price upfront. In contrast, many states levy sales tax on each lease payment instead, meaning the tax is spread out over time.

This can improve cash flow, as you’re not paying a large sales tax sum all at once. (Note that sales tax rules vary by state; some require upfront tax even on leases. But in states where tax is monthly, leasing avoids a big initial tax outlay.)

Additionally, leasing keeps the equipment off your balance sheet (in the case of an operating lease), which might be preferable for some businesses from a financial reporting perspective – though this is more of an accounting concern than a tax benefit.

In summary, leasing medical equipment provides immediate and continuous tax deductions in the form of expensed lease payments. It avoids the complexity of depreciation and the potential tax recapture issues of owning assets. However, pure leasing also means you won’t get the one-time large deductions that owners can sometimes take (unless you structure the lease as a finance lease that qualifies for such deductions).

For many medical practices, especially new or budget-conscious ones, the ability to fully deduct payments and preserve cash can make leasing an attractive strategy. Next, we’ll look at the other side of the coin: the tax benefits that come with owning your medical equipment.

Tax Benefits of Owning Medical Equipment

When you purchase and own medical equipment (either by paying cash or financing the purchase with a loan), you are eligible for a different set of tax benefits.

Owning equipment allows you to take advantage of depreciation deductions, and current U.S. tax law provides additional incentives like Section 179 expensing and bonus depreciation for equipment purchases. Here are the key tax benefits of owning:

Depreciation Deductions (Standard): Under normal circumstances, when you buy a piece of medical equipment, you generally cannot deduct the entire cost in the year of purchase (unless you use special provisions like Section 179 or bonus depreciation). Instead, the cost is capitalized and written off over the equipment’s useful life through depreciation.

Medical equipment is typically considered tangible personal property and often has a useful life of about 5 to 7 years for tax depreciation (the exact class life depends on the type of equipment, per IRS guidelines).

Using the standard Modified Accelerated Cost Recovery System (MACRS), many types of medical equipment would qualify for a 5-year depreciation schedule under current tax rules (meaning you spread the deductions over five years, often accelerated more in earlier years under MACRS rules).

Each year, you claim a portion of the equipment’s cost as a depreciation expense, which reduces your taxable income. For example, if you bought an X-ray machine for $100,000 (with no special expenses), you might deduct around $20,000 (or more with accelerated rates) per year for five years, subject to IRS depreciation tables.

Depreciation is a valuable tax benefit because it acknowledges the equipment’s wear and tear and loss of value over time, giving you annual write-offs. It is one of the core tax advantages of owning business assets: your purchase becomes a stream of deductions over several years.

Importantly, even if you finance the equipment with a loan, you still calculate depreciation on the full purchase price, not just on what you’ve paid so far. Depreciation for tax is separate from loan payments; you could be depreciating an asset even as you pay it off gradually.
Section 179 Expensing (Immediate Write-Off): In addition to regular depreciation, U.S. tax law provides a powerful incentive for businesses investing in equipment: Section 179 of the Internal Revenue Code.

Section 179 allows businesses to elect to deduct the full purchase price of qualifying equipment in the year it is placed into service, rather than depreciating it over time. In other words, it’s an accelerated tax deduction that effectively treats the purchase as an expense.

This can result in a huge tax saving in the first year of ownership. As of 2025, the Section 179 deduction limits are quite generous: a business can deduct up to $1,250,000 of the cost of eligible equipment for the year.

This deduction is intended to benefit small and medium businesses, so it does have a cap: the $1.25 million limit begins to phase out if a business purchases more than $3,130,000 in equipment in that year, and the deduction is completely phased out after $4,380,000 in total equipment purchases.

(These thresholds mean that very large capital expenditures might reduce or eliminate the Section 179 write-off, but most medical practices will stay under those limits.) Section 179 can be applied to new or used equipment, as long as it’s new to you and used more than 50% for business.

In practice, Section 179 spending lets a medical practice immediately deduct the full cost of, say, a new MRI machine or a suite of dental equipment, in the year of purchase, up to the limit. This can drastically lower the practice’s taxable income for that year.

For example, if a physician group buys $300,000 of medical equipment in 2025 and qualifies for Section 179, they could deduct the entire $300,000 on their 2025 tax return (assuming taxable income at least that high), potentially saving tens of thousands in taxes depending on their tax rate.

It’s important to note that Section 179 cannot be used to create a tax loss – you can’t use it to deduct more than your business’s net income (any excess can often be carried forward). But for profitable practices, Section 179 is a key strategic tool.

Leasing vs owning question: remember that Section 179 generally applies to purchases. If you lease under an operating lease, you can’t claim Section 179 because you haven’t purchased the asset.

However, if you finance the equipment or have a capital lease, you can use Section 179 even if you haven’t paid cash up front – as long as the equipment is purchased and placed in service, even if financed, Section 179 applies (you don’t need to pay off the equipment to get the deduction). This is a huge advantage of owning or financing: the ability to front-load your tax savings.

Current 2025 update: The Section 179 limits adjust periodically for inflation. For tax year 2025, the maximum deduction is confirmed at $1,250,000, with the phase-out starting after $3,130,000 in purchases (fully phased out by $4,380,000). These figures are higher than they were in earlier years, reflecting inflation adjustments. Always check the latest limits for the year you’re purchasing, but these numbers ensure most typical medical practices can deduct all their equipment costs immediately if desired.

Section 179 covers a wide range of qualifying property – virtually all medical equipment (e.g. imaging machines, examination devices, dental chairs, computers for the practice, etc.) will qualify, as its tangible business property used >50% for business. Even certain software and office furniture can qualify.

Bonus Depreciation: Alongside Section 179, another incentive exists for equipment purchases called bonus depreciation. Bonus depreciation allows a business to deduct a specified percentage of the equipment’s cost in the first year, on top of the regular depreciation for the remainder.

In recent years, bonus depreciation was 100%, essentially overlapping with Section 179, but this has begun to phase down. As of 2025, bonus depreciation is an important consideration if you exceed Section 179 limits or if you have certain property not covered by Section 179.

Currently, for 2025, the bonus depreciation rate is 40% of the cost of qualifying assets. This means if you bought a piece of equipment for $100,000, you could take an immediate $40,000 deduction as bonus depreciation, then depreciate the remaining $60,000 using normal methods.

Bonus depreciation has no dollar cap (unlike Section 179) and can even create net operating losses (it’s not limited by income), which makes it useful for larger investments. However, bonus depreciation is automatic (you have to elect out if you don’t want it) and it applies after Section 179.

Importantly, the law is phasing out bonus depreciation: it was 100% for assets placed in service in 2018-2022, then 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and scheduled to go away by 2027 unless changed. So in 2025 you still have a significant (40%) extra first-year depreciation available.

You can combine Section 179 and bonus depreciation as well – for example, a practice could use Section 179 to fully expense some equipment and then also apply bonus depreciation to other assets or any remaining basis. For many small practices, Section 179 is sufficient to deduct their equipment costs; but if you had a very large purchase or multiple purchases exceeding the Section 179 limit, bonus depreciation kicks in to further reduce taxable income.

The bottom line is that owning equipment gives you access to these accelerated depreciation tools that leasing (operating lease) would not. These tools can drastically increase your first-year deductions and reduce taxes, effectively subsidizing the purchase.
Interest Expense Deduction: If you finance the equipment purchase with a loan (or a financed lease considered a purchase), remember that you can generally deduct the interest portion of your loan payments as a business interest expense. For example, if you take a loan to buy a medical laser machine and your monthly payment is $2,000, part of that is principal (paying for the asset) and part is interest.

The principal portion is not directly deductible (it’s building your asset’s basis, which you recover through depreciation), but the interest portion is deductible. Interest on business loans is tax-deductible up to certain limits (very large corporations have some interest deduction limits, but small businesses are usually fully allowed).

This effectively reduces the cost of borrowing. Compared to an operating lease where the full payment is deductible, a loan’s full payment isn’t deductible – only interest is – but you get depreciation deductions in lieu of the principal. In early years of a loan, interest might be significant (and fully deductible), and in later years it tapers off.

This interest deduction is an added perk of owning with financing: you get to deduct both depreciation on the equipment and the financing costs (interest) of buying it. In contrast, if you pay cash, there’s no interest to deduct (but you might then simply use Section 179 to expense the cost).
Building Equity and Residual Value: While not a tax deduction per se, owning equipment means you have an asset that may retain some value. If after a few years the equipment still has useful life or resale value, you could sell it and recoup some cash (though taxes may apply to any gain).

In a lease, those residual benefits belong to the lessor. From a tax perspective, if you sell owned equipment for more than its depreciated value, you may have to report a gain and potentially pay depreciation recapture tax on the portion of the gain that represents previously taken depreciation.

This is a consideration on the back end of ownership. However, you control the timing of a sale and can plan for the tax impact. Also, if the equipment is sold for less than its remaining book value (a loss), you could potentially deduct that loss.

Leasing doesn’t offer this scenario – you never have to deal with disposing of the asset for tax purposes, as noted earlier, which is an advantage of leasing. But owning gives you the chance to benefit if the equipment turns out to have a good resale market.

In summary, owning medical equipment provides powerful upfront and long-term tax benefits. Through depreciation, Section 179, and bonus depreciation, owners can often deduct a large portion or even all of an equipment’s cost in the first year of purchase. These provisions are intentionally designed to encourage businesses to invest in new equipment and technology.

For a profitable medical practice, taking a big deduction this year could free up capital (from tax savings) to reinvest in the business or upgrade other areas. Of course, not every practice can utilize a huge deduction if their taxable income is low (Section 179 won’t create a loss – unused amounts carry forward).

In such cases, regular depreciation over time might be more than sufficient. The key takeaway is that buying/owning gives you more flexibility in how and when you take your tax deductions – you have the choice to accelerate them (if beneficial) or spread them out. Leasing, conversely, gives you a fixed deduction each year with less flexibility.

Before deciding solely on the tax benefits, it’s important to consider other strategic factors too, which we will discuss. But from a pure tax perspective, an ownership strategy can yield greater tax savings upfront, whereas leasing yields smaller tax savings spread out over the life of the lease. Next, we compare these scenarios directly and address which approach might save more in taxes under different circumstances.

Comparing the Tax Benefits: Lease vs Own

When evaluating leasing versus owning medical equipment, it helps to compare the key tax outcomes side by side. Below is a comparison of the major tax considerations for each option:

Amount and Timing of Deductions: Leasing provides a steady deduction equal to your lease payments each year, while owning can provide a large upfront deduction followed by smaller (or no) deductions in later years.

For example, if you lease a $100,000 piece of equipment for $2,000 per month for 5 years, you deduct $24,000 each year of the lease. If you buy a $100,000 piece of equipment, you could potentially deduct the full $100,000 in Year 1 with Section 179 (assuming profits to support it), or take $20k per year over 5 years with normal depreciation.

Thus, buying often yields greater immediate tax savings, whereas leasing spreads the tax savings over time. The best choice depends on whether you want a big deduction now or prefer to distribute deductions across years.
Total Tax Savings Over Time: If we ignore timing, the total amount of deductions can end up similar in a long run scenario – with ownership, you eventually deduct 100% of the equipment cost through depreciation (assuming you use it until fully depreciated), and with leasing, you deduct 100% of the lease payments which roughly equate to the cost plus financing.

However, leasing often costs more in total (interest/fees built into lease payments), so total deductions may be higher dollar-wise with a lease, but that’s because you paid more. Importantly, a lease might include costs that are deductible (payments) beyond the equipment’s value, whereas buying limits you to the equipment cost (but you also retain the asset).

For instance, if leasing ends up costing $110,000 over five years for a $100,000 asset, you’d deduct $110,000 total over that period. If you bought for $100,000 cash, you’d deduct $100,000 (either in one go or over time). So leases can yield more deduction in absolute terms, but at the expense of actually paying more.

From a pure tax efficiency perspective, owning is often more cost-effective because you’re not paying extra financing or leasing fees – you get to deduct the principal cost via depreciation and interest separately.

Leasing’s advantage is not in giving more total tax write-off, but in giving an easier, more even write-off and possibly larger deductions in later years when an owned asset might have already been fully depreciated.
Section 179 and Bonus Depreciation Considerations: The availability of Section 179 and bonus depreciation heavily tilts the tax benefit in favor of owning if you can use these provisions. A practice that needs to offset a large income this year might prefer buying to take advantage of a full immediate write-off.

Leasing (operating lease) wouldn’t allow that – your deduction is limited to the lease payments, which likely are a fraction of the equipment cost. For example, a highly profitable surgical center near year-end might purchase a new $200k imaging device and write off the entire cost under Section 179, saving perhaps $40-50k in taxes (depending on tax bracket) in one year.

Leasing that same device might only produce, say, a $50k deduction per year if the lease payments are that much, spreading the tax relief over several years. On the other hand, if a practice’s income is low such that it can’t fully utilize a big Section 179 deduction this year, then the advantage of ownership’s upfront deductions diminishes.

The deductions might be carried forward or simply not taken in full. In that case, leasing’s spread-out deductions could actually match the practice’s ability to absorb them year by year. Strategic point: Use Section 179 when you have profits to offset; if not, leasing’s gradual deduction might fit your profit profile better.
Operational Lease Simplicity vs Ownership Complexity: Leasing (operating) keeps things simple – you deduct the payment, done. Owning requires tracking depreciation schedules, making the appropriate elections for Section 179 or bonus, and handling asset disposition at the end.

This complexity can be managed with the help of a tax professional, but it’s something to consider. If you prefer simplicity and predictability, leasing offers that; if you are comfortable with some tax planning complexity for the sake of savings, owning gives you that opportunity. Many find the tax savings of ownership well worth the extra bookkeeping effort.
End-of-Term Outcomes and Taxes: At the end of a lease, you typically return the equipment or buy it at fair value. There’s no tax due on returning it (no sale from your side). At the end of owning an asset, if you sell the equipment or trade it in, there could be a taxable event.

If the sale price is higher than the remaining book value, you have a taxable gain (including depreciation recapture). If it’s lower, you might have a deductible loss. Leasing thus avoids end-of-life tax calculations, whereas owning requires you to account for any disposition.

However, remember that during ownership you got tax benefits (depreciation) that you never get in a lease, so the recapture is essentially paying back some of those benefits if the asset held value.
Cash Flow vs Tax Trade-off: Tax benefits shouldn’t be viewed in isolation. Leasing often wins on upfront cash flow (little down payment, smaller periodic payments) while owning ties up capital or requires financing.

Section 179 and bonus depreciation can give a big tax refund or savings, but you still have to lay out the money (or incur debt) to buy the equipment. In other words, leasing saves cash now and gives tax relief gradually, whereas buying costs cash (or credit) now but can yield a big tax break that might recuperate some of that outlay at tax time.

A strategic consideration is whether you need the tax break immediately or if preserving cash is more important. For some growing practices, conserving cash via leasing, even though it forgoes an immediate tax write-off, might be the wiser move to ensure you can pay salaries and other expenses.

For others with strong cash flow and profitability, taking advantage of tax incentives via ownership can effectively make the equipment cheaper after-tax.

Frequently Asked Questions (FAQ) about Leasing vs Owning Medical Equipment

Q: Is it better to lease or buy medical equipment for tax purposes?

A: It depends on your situation. Buying (owning) offers the possibility of a much larger immediate tax deduction. For example, using Section 179, you might deduct the entire cost of equipment in one year, which can significantly reduce your taxes if you have the income to offset.

Leasing doesn’t allow that kind of one-time write-off (unless it’s a finance lease structured for ownership). However, leasing provides 100% deductible lease payments each year, giving a steady tax benefit and very simple accounting. If your practice is highly profitable and can use a big deduction now, buying to utilize Section 179 or bonus depreciation could save more in taxes right away.

On the other hand, if your practice is newer or you prefer to preserve cash, leasing will still give you tax deductions (spread out) while minimizing upfront costs. In the long run, the total tax deduction might be similar, but the timing and impact on cash flow differ. So “better” for tax purposes comes down to whether you need big immediate tax relief (favoring owning) or prefer ongoing deductions with low initial expense (favoring leasing).

Always consider non-tax factors too, but purely for taxes, owning usually yields more aggressive tax savings, whereas leasing provides more controlled, periodic savings.

Q: What is Section 179 and how does it apply to medical equipment?

A: Section 179 is a tax provision that allows businesses to fully expense the cost of qualifying equipment in the year of purchase instead of depreciating it over multiple years. Essentially, it’s an accelerated depreciation method aimed at small and medium businesses to encourage investment in equipment.

Medical equipment (e.g. MRI machines, ultrasound units, dental chairs, etc.) typically qualifies for Section 179 as long as it’s used more than 50% for business and is purchased (new or used) and put into service during the tax year. For 2025, the maximum Section 179 deduction is $1.25 million, and this limit phases out once you buy over $3.13 million in equipment (fully phasing out at $4.38 million).

In practice, this means most medical practices can deduct all of their equipment costs up to that $1.25 million cap. If you buy a piece of equipment and use Section 179, you subtract its full cost from your taxable income, which can yield a big tax saving. However, Section 179 cannot be used to deduct more than your business’s taxable profit (excess can carry to next year).

It also does not apply to operating leases – if you lease equipment without owning it, you cannot claim Section 179 on it. Some finance leases ($1 buyout types) are effectively purchases, so those can qualify.

Think of Section 179 as a tremendous tax tool when you own or finance medical equipment; it’s like declaring that equipment as an immediate expense. This often makes buying equipment very tax-efficient for the year of purchase.

Q: Can I claim Section 179 on leased medical equipment?

A: If it’s a true operating lease, no, you cannot claim Section 179 on equipment you are leasing because you haven’t actually purchased the asset. The tax ownership lies with the lessor, so they would be the one eligible to depreciate or expense it (and typically, lessors don’t use Section 179 because they lease out many assets and may exceed the limits).

However, if your lease is structured as a capital lease or lease-to-own (for example, a lease with a $1 buyout or guaranteed purchase at the end), then for tax purposes you are considered the owner during the lease term, and you can claim Section 179 on that equipment.

Many equipment financing agreements called “Equipment Finance Agreements” or capital leases allow this: you finance the equipment but still take the tax deduction as if you bought it outright. It’s wise to confirm with the leasing company and your accountant – ask if the agreement is Section 179 eligible.

Some leasing companies even advertise deals like “$0 down and still get your Section 179 deduction this year.” So in summary: Operating lease = no Section 179 for you (just deduct your payments), Capital/finance lease = yes, Section 179 possible (because it’s essentially a purchase on installments).

Make sure the equipment is placed in service during the year and you meet other Section 179 rules. Always consult a tax professional if unsure, because improperly claiming Section 179 on a lease that doesn’t qualify could cause problems in an audit.

Q: How does depreciation work if I own medical equipment?

A: Depreciation is a way to spread the cost of a tangible asset over its useful life for tax purposes. If you own medical equipment, the IRS lets you deduct a portion of its cost each year as the equipment wears out or ages. Under standard depreciation, you can’t just deduct the full cost in one go (unless using Section 179 or bonus depreciation).

Medical equipment generally falls under 5-year or 7-year depreciation schedules in the MACRS system (many high-tech medical devices qualify for 5-year). This means over 5 years, you will deduct the full cost – but more of it is deducted in earlier years under accelerated methods.

For example, without any special expensing, if you bought a piece of equipment for $50,000, you might deduct around $10,000 in the first year, $16,000 in the second year, and so on, totaling $50,000 over its depreciable life (these figures come from IRS tables for 5-year property).

Depreciation starts when the equipment is “placed in service” (ready to use). You’ll continue depreciating each year until you’ve written off the full cost (or until you sell or remove the equipment from service). If you sell the equipment before fully depreciating, you stop depreciating and handle the sale on your taxes (possibly with gain or loss calculations). Depreciation can be done with different methods (straight-line, double declining balance, etc.), but MACRS is the default for tax and it’s accelerated.

However, as discussed, most businesses now use Section 179 or bonus to speed it up even more. To sum up: if you own equipment and don’t or can’t expense it all at once, you will take annual depreciation deductions which provide a tax benefit each year. It’s a way to recover the cost gradually.

You should maintain a depreciation schedule (often your accountant or tax software will do this) to keep track of what’s left to depreciate. Depreciation is a key tax benefit of owning because it means even if you couldn’t expense it in year one, you will eventually deduct the full cost of the equipment over time, reducing taxable income in those years.

And remember, if you also have a loan on the equipment, you’ll get separate deductions for the interest on that loan, as mentioned earlier.

Q: Are lease payments fully deductible, and are there any limits?

A: Yes, for an operating lease, the payments are generally fully deductible as a business expense, provided the equipment is used for business purposes. There isn’t a specific IRS dollar limit on deducting lease payments (unlike, say, the Section 179 cap on purchases). The key is that the lease must be a genuine lease arrangement at fair market rates.

If you’re leasing medical equipment for your practice, you can deduct each payment (principal and interest embedded in it) as an “ordinary and necessary” business expense under Section 162 of the tax code. Most medical practices will simply include those lease expenses on their tax return as part of equipment rental or business expenses.

As long as the lease is not a disguised purchase, you won’t run into per-item deduction limits – even big ticket items can be leased and deducted (for instance, leasing an MRI machine for $10k a month would yield a $120k annual deduction, which is fine if it’s an actual lease).

One thing to be careful about: if the IRS deems a lease to really be a purchase (for example, a $1 buyout lease is essentially a purchase), then they might say you shouldn’t deduct the whole payment but instead depreciate the asset.

But that’s exactly the operating vs capital lease distinction we discussed. For true leases, deduct away! There are no phase-out thresholds like Section 179, and you don’t need taxable income to support deducting a lease expense (lease expenses can contribute to a business loss which might offset other income, subject to at-risk/passive loss rules if applicable).

Q: What other factors should I consider beyond taxes when deciding to lease or buy?

A: While taxes are important, there are several non-tax or strategic factors to weigh in the lease vs own decision:

Upfront Costs and Budget: Leasing typically has little to no down payment, which preserves your cash and credit lines. Buying requires either significant cash outlay or taking on debt/loan. Even with tax deductions, you need to afford the purchase or loan payments. Start-ups or practices with tight cash flow may lean towards leasing to avoid large upfront costs.
Equipment Obsolescence and Technology: Medical technology evolves rapidly. If the equipment you’re acquiring could become outdated in a few years (e.g. diagnostic imaging machines, lasers, etc.), leasing gives you flexibility to upgrade at lease-end without having to sell old equipment.

Owning means you bear the risk of obsolescence – you might own an asset that loses value or utility quickly. Leasing can be ideal for equipment you only need for a short term or plan to upgrade frequently, whereas owning suits equipment with a long useful life that won’t need replacement soon.
Maintenance and Service: Lease contracts sometimes include maintenance, support, or training, which can be valuable (for instance, a lease might include service calls for a lab machine). When you own, you are responsible for maintenance and repair costs out of pocket. This isn’t directly a tax issue (though maintenance costs are deductible as business expenses when incurred), but it affects the total cost and hassle of each option.
Long-term Cost: In many cases, leasing can end up costing more over the life of the equipment than purchasing, because the leasing company needs to earn interest/profit. If your goal is to minimize total cost and you plan to use the equipment long-term, buying might be cheaper in the end (especially if you can utilize the tax deductions effectively).

On the other hand, if you only need the equipment for a limited time or want the option to change models, leasing might save you from a big investment in something you don’t need indefinitely.
Balance Sheet and Credit: Buying an asset means you record it on your balance sheet (which could be good, as you’re building assets, but also means any loan is a liability on the books). Leasing (operating lease) often keeps the liability off your balance sheet (though accounting rules have changed for GAAP reporting, tax still treats operating leases differently).

If keeping debt low is a concern, leasing might help, but modern accounting standards require many leases to be reported as liabilities anyway. From a lender’s perspective, too much debt could affect loan covenants; conversely, owning assets gives collateral value.
Future Flexibility: Leasing can be seen as “renting” flexibility – at the end you can walk away and not worry about disposing of equipment. Owning locks you in – if you no longer need the equipment, you have to sell it or find a buyer, which could be a hassle or you might not get a good price (especially if technology moved on). Leasing could protect you from being stuck with outdated or unused equipment.

In essence, taxes are just one piece of the puzzle. A smart decision will consider the total cost of ownership vs leasing, the practice’s financial health, and the importance of having the latest technology.

Sometimes the tax tail shouldn’t wag the dog – for instance, don’t buy an expensive machine just for the tax deduction if it doesn’t make financial or operational sense for your practice. That said, understanding the tax benefits helps you maximize whichever route you choose.

Many practices perform a side-by-side analysis (including tax effects) to see which option provides a better net outcome. Consult with both a financial advisor and a tax advisor if possible, to see the full picture.

Conclusion

Choosing between leasing and owning medical equipment is a strategic decision that has both tax and operational implications. From a tax benefits standpoint, owning equipment provides opportunities for substantial deductions through depreciation, Section 179 expensing, and bonus depreciation, potentially allowing you to write off most or all of the equipment’s cost in the first year.

This can significantly lower your tax bill, especially if your practice is profitable and can use the deduction. Owning also lets you deduct loan interest if you financed the purchase, adding to the tax savings.

On the other hand, leasing offers the advantage of simplicity and cash flow flexibility – your lease payments are fully deductible as operating expenses, giving you a steady tax reduction without a large upfront investment. Leasing avoids the burdens of tracking depreciation or dealing with asset disposition and potential depreciation recapture down the road.

In summary, if your goal is to maximize tax write-offs quickly and you have the capital or credit to purchase equipment, owning may be more beneficial – the tax code heavily incentivizes investment in equipment by allowing immediate or accelerated deductions.

However, if conserving cash and maintaining flexibility is a priority, leasing provides tax relief in the form of deductible payments while minimizing initial costs, which can be crucial for newer practices or when equipment needs frequent upgrading. The “tax savings vs. cash flow” trade-off is central: buying can yield more tax savings overall, but leasing might improve cash flow and still provide adequate tax deductions spread over time.

Beyond the tax calculations, remember to factor in other considerations like how long you’ll need the equipment, the pace of technological change, maintenance responsibilities, and total cost of each option.

Often, the decision will balance both financial and practical factors. Many medical practices use a mix – for example, purchasing core long-life equipment to take advantage of tax breaks, but leasing very expensive high-tech devices that may need replacement in a few years

Finally, tax laws can change, and each business’s situation is unique. The information here reflects U.S. tax laws and limits as of 2025, but it’s always wise to consult with a qualified tax professional before making large financial decisions.

They can provide guidance tailored to your practice, ensuring you maximize tax benefits and avoid any pitfalls. By understanding the tax implications and combining that knowledge with your operational needs, you can make the best decision on leasing vs owning medical equipment – one that strengthens your practice’s financial position and supports its growth for years to come.