Which lease is typically structured as a true or tax lease?

Which lease is typically structured as a true or tax lease?

• A. Operating Lease
• B. Capital Lease
• C. Finance Lease
• D. Synthetic Lease

Answer: (C)

A true lease, often called a tax lease, is designed so the lessor retains ownership for tax purposes while the lessee uses the asset under payments that function like debt service. Because the arrangement is intended to resemble financing rather than transferring ownership, it typically shows up as a financing (capital) lease on the lessee’s books and for tax treatment. The structure aims to provide the tax benefits to the lessor and to treat the payments as a form of financing for the asset, rather than a straightforward purchase by the lessee. So, in this context, the lease most commonly described as a true or tax lease aligns with a financing/capital lease.

A true lease, often called a tax lease, is designed so the lessor retains ownership for tax purposes while the lessee uses the asset under payments that function like debt service. Because the arrangement is intended to resemble financing rather than transferring ownership, it typically shows up as a financing (capital) lease on the lessee’s books and for tax treatment. The structure aims to provide the tax benefits to the lessor and to treat the payments as a form of financing for the asset, rather than a straightforward purchase by the lessee. So, in this context, the lease most commonly described as a true or tax lease aligns with a financing/capital lease.