How the comparison works
Buying and leasing produce very different cash-flow profiles. Buying requires a down payment and larger monthly loan payments, but you own an asset worth money at the end and you can take large depreciation deductions — Section 179 lets you deduct the full purchase price in year one (up to the 2026 limit). Leasing has lower monthly payments, and each payment is fully deductible as a business expense, but you return the machine with nothing to show for it.
The calculator discounts every cash flow to today's dollars (net present value) so a dollar saved in year 5 is worth less than a dollar saved today. The result is the true after-tax cost of each option in current dollars.
Example: mid-size skid steer at 2026 market pricing
These are the pre-filled defaults. Replace them with your actual quote before making a decision.
| Input | Buy (loan) | FMV lease |
|---|---|---|
| Equipment cost | $65,000 | |
| Down / first payment | $6,500 (10%) | $1,250 |
| Monthly cost | ~$1,200 at 8.5%, 60 mo | $1,250 |
| Term | 60 months (5 years) | |
| Total cash over term | ~$78,500 | $75,000 |
| Machine at end | Own (~$20,000 value) | Return (no asset) |
| Tax deduction method | Section 179 (year 1) | Lease payments (each year) |
At a 25% tax rate, Section 179 on a $65,000 purchase saves $16,250 in taxes in year one. Five years of lease payments ($75,000) deducted at 25% save $18,750 spread over those years. Which is better after discounting depends on your borrowing rate — use the calculator above to see the NPV comparison for your numbers.
Assumptions and limitations
- Prices vary. The $65,000 default represents a mid-size skid steer (around 1,800–2,200 lb operating capacity) at 2026 dealer pricing. Compact models start around $35,000; large-frame machines exceed $100,000. Always use your actual quote.
- Section 179 requires taxable business income. You can only use the deduction up to your net business income for the year. If you don't expect enough income, uncheck the Section 179 checkbox and switch to MACRS 5-year, which spreads the deduction over 6 tax years.
- Residual value is an estimate. Skid steers depreciate roughly 30–50% over five years depending on hours and condition. The $20,000 default (≈31% of cost) is a conservative estimate for a used machine with 2,000–3,000 hours.
- Lease payment varies by lender and creditworthiness. The $1,250/mo default is typical for an FMV operating lease from a major equipment finance company on good credit. Rates from banks, credit unions, and manufacturer captive lenders (Cat Financial, John Deere Financial, Bobcat Finance) will differ.
- State-level income taxes, property taxes on owned equipment, and insurance costs are not modeled. These can favor one option depending on your state.
Frequently asked questions
- What MACRS class does a skid steer fall under?
- Most skid steer loaders are 5-year MACRS property (asset class 00.12, automobiles, taxis, and certain trucks, or 00.22, automobiles and taxis, depending on the IRS guidance applied). In practice, construction equipment used in your trade or business is typically 5-year MACRS unless it falls under a specific class life table for a different period. Confirm with your CPA — the choice affects years 2 through 6 of your deduction schedule.
- Can I use Section 179 on a leased skid steer?
- No. Section 179 applies only when you purchase the equipment (own it). With a true operating (FMV) lease, you deduct the lease payments as a business expense each year. With a $1-buyout lease — treated as a financed purchase — you can take Section 179 because you own the machine.
- What's the difference between an FMV lease and a $1-buyout lease?
- An FMV (fair-market-value) lease is a true operating lease: you return the machine at the end and pay fair market value if you want to buy it. Payments are lower because the lessor retains residual value. A $1-buyout lease is a financing arrangement where you own the machine at the end for $1 — it's structured like a loan. Monthly payments are higher but you get the depreciation deductions.
Sources
- Associated Equipment Distributors (AED), Construction Equipment Finance Report 2025 (accessed 2026-10-02)
- IRS Rev. Proc. 2025-32: Section 179 limits and bonus depreciation for 2026 (accessed 2026-10-02)
- IRS Publication 946, How To Depreciate Property — MACRS 5-year asset class (accessed 2026-10-02)