If you acquire a piece of equipment for use in a trade or business, like a forklift or truck, are the payments you make deductible lease payments or do you instead depreciate the cost of the equipment?
You must first determine whether your agreement is a lease or a conditional sales contract. If the agreement is a lease, you may deduct the payments as rent. If the agreement is a conditional sales contract, you consider yourself as the outright purchaser of the equipment. You may generally recover the cost of such property used in a trade or business through depreciation deductions.
Whether the agreement is a lease or a conditional sales contract depends on the intent of the parties as evidenced by their agreement, which is read in light of the facts and circumstances when it was entered into. Determine the parties' intent based on the facts and circumstances that exist when you enter into the agreement. No single test, or special combination of tests, always applies.
However, in general, you may consider an agreement as a conditional sales contract rather than a lease if one or more of the following conditions apply: