Why the “One Big Beautiful Bill” Is Great News for FMV Leases—Not Their Demise
—By Sudhir Amembal
Note: This article, subsequently edited, first appeared in The Monitor Suite in September 2025
The essence of any article must be stated both at the beginning and at the end. At the outset, I want to state that, contrary to some published articles, the recent tax law changes will bolster the proliferation of FMV leases. This statement may surprise many, if not all, readers who feel that outright cash purchases, loans, EFAs and full-payout capital leases will be the sole beneficiaries.
It has been over nine months since the "One Big Beautiful Bill" was enacted. ‘Big’ in the context of its impact on our industry. ‘Beautiful’ as it will result in the resurgence of the FMV lease, which I have always been a proponent of! Much has been written; much has been analyzed. Numerous articles have detailed the changes. The income tax webinar I presented three different times, attended by over 400 industry professionals, delineated its impact on lessors, their customers and the products being offered.
Barring any major uncertainties, including the possibility that our economy may face stagflation, it is fair to conclude that the substantial increase in the Section 179 limit, from $1.25 million to $2.5 million (and since then in 2026 to $2,560,000), and the restoration of the 100% bonus depreciation will provide a boost to capital expenditures. Outright cash purchases, loans, full-payout capital leases and EFAs will seemingly be the beneficiaries of instant expensing and " instant" depreciation. Not so fast!
The $2,560,000 Section 179 benefit in its entirety applies only to those taxpayers whose total purchases and ‘deemed’ purchases[1] are between $2,560,000and $4,090,000 in any applicable tax year. If purchases are less than $2,560,000 then the lower amount will qualify for instant expensing. Purchases in excess of $4,090,000 will trigger a dollar-for-dollar decrease in the limit. As an example, if total purchases are $4,200,000, then $ 110,000of the benefit will be lost. When total purchases are equal to or greater than $6,650,000 the entire benefit will be lost.
Suffice it to say that Section 179 applies to small and medium-sized entities. While no formal statistics are available, we can place entities into three categories:
Those whose purchases are equal to or less than $4,090,000, such that none of the benefit is lost
Those whose purchases are less than $6,650,000 such that a part of the benefit can be availed of
Those whose purchases are equal to or more than $6,650,000 such that the entire benefit is lost,
Statistics gleaned from ELFA's 2025 SEFA report validate the conclusion that Section 179 applies to a limited segment of customers. The statistics, gathered from what could be considered a valid statistical sample, indicate that over 75% of our industry's business volume is derived from middle-market and large-ticket transactions, which is where the largest percentage of FMV leases is found. Also, given that bonus depreciation claimed beyond taxable income will either create or increase a net operating loss (NOL), many small to medium-sized businesses that are either in a tax loss position or have low taxable income will continue to seek FMV leases.
With respect to bonus depreciation, customers fall into three categories:
Those who can avail of the benefit and will be seeking to do so
Those who cannot
Those who will not want to
Regarding products offered in our industry, EFAs and capital leases will be the products of choice for those in the first category. But there will be some entities that cannot use the benefit, primarily those that will be acquiring non-qualifying equipment.
The more important, and perhaps the largest, group will be those who will decide not to pursue the benefit. This is owing to numerous factors, all of which are quantitative in nature. Six such factors are detailed below:
Low-Income Limitations: Customers in a tax loss position or that have low taxable income will most likely not pursue the bonus as this would either exacerbate the loss position or trigger a NOL. Though NOLs can be carried forward indefinitely, they can only offset 80% of taxable income in the future. This is further complicated with the alternative tax NOL or ATNOL.
Future Tax Risk: Utilizing the bonus in any one year to a large extent, although it will defer taxes, can potentially cause tax rates to spike in subsequent years. Given the growing federal deficit, it is not inconceivable that corporate tax rates may increase in the ensuing years.
QBI Deduction Impact: Non-corporate customers are allowed to deduct up to 20% of a certain base, known as qualified business income. Bonus depreciation will substantially impair the base and, therefore, the benefit of such deduction.
Mid-Quarter Penalty: Some customers who opt out of bonus depreciation will continue to use MACRS. Its mid-quarter convention penalizes taxpayers whose purchases in the fourth fiscal quarter exceed 40% of the total equipment purchased during the year. Entities seeking to exhaust their capital expenditure budgets often trigger this penalty. Adding just the right amount of FMV leases in the fourth quarter will circumvent this penalty.
Interest Expense Limit: Many customers have a low EBITDA base. This group, particularly if highly leveraged, will bump against the interest expense limitation and will not seek EFAs and capital leases that generate additional interest expense, which will be non-deductible. Instead, they will seek FMV leases, which result in lease expense being deductible on the tax return.
Tax Deferral Advantage: FMV leases allow lessors to claim the bonus depreciation, which leads to tax deferral. This will enable lessors to pass some or all the tax benefit derived from the deferral to customers in the form of a lower lease payment. This will cause many customers to lean toward FMV leases, particularly in the middle-market and large-ticket transactions, which are where after-tax pricing is generally used.
FMV leases do become the product of choice for customers who face the above situations. These items create a quantitative jigsaw puzzle for many customers in deciding whether to avail of bonus depreciation. This jigsaw puzzle creates an opportunity for lessors who offer FMV leases by communicating to their customers that FMV leases are, in fact, the preferred product of choice when a customer faces one or more of the above situations.
The case has been made that neither Section 179 nor bonus depreciation are the death knell for FMV leases, as many have professed. To the contrary, given political and economic uncertainties, the higher cost of equipment due to tariffs and supply chain disruptions and shorter upgrade cycles, the likely boost in capital expenditures will more than spill over into the pay-as-you-go operating expense related FMV lease.
Going beyond the narrow aspect of taxation, which is only one of several motivators that impact customers' modes of acquisition, in my full-day seminar, “Winning With Leasing!" I detail the 36 benefits (Yes, 36!) that FMV leases offer to customers. To conclude, the true lease and the FMV lease are not only here to stay; they will expand their share of total equipment financed!
Sudhir Amembal, the CEO of Amembal & Halladay, is the leading educator in the global equipment leasing industry. Over the past four-plus decades, his firm has trained over 80,000 industry professionals. His fourth free webinar, "Recent Tax Legislation and its Impact" will be offered on April 8, while his next full-day flagship seminar, "Winning With Leasing!," will next be offered on June 8
To register for the free webinar, click here:
To register for Winning With Leasing! click here:
[1] Deemed refers to EFAs and full-payout capital leases.