FMV Lease vs. $1 Buyout Lease: How to Choose the Right Structure for IT Equipment

Author: Simon Harrsen, Executive Vice President, North America, CHG-MERIDIAN

Published: March 11, 2026

A $1 buyout lease (sometimes called a capital lease or equipment finance agreement, or EFA) works more like a loan. You make higher monthly payments because you’re financing the full cost of the asset, and at the end of the term, ownership transfers to you for a nominal $1. Among the common lease buyout options, the capital lease buyout at $1 is the most straightforward: the ownership question is settled from day one.

Under ASC 842, $1 buyout leases are classified as finance leases because ownership transfers at the end. Like an FMV lease, a finance lease is recorded on your balance sheet with an ROU asset and lease liability. The difference is in the income statement: instead of a single straight-line expense, a finance lease recognizes depreciation and interest separately, which front-loads the expense in earlier periods.

A key advantage of the $1 buyout structure is the tax treatment. With the One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, 100% bonus depreciation has been permanently reinstated for qualifying property acquired and placed in service after January 19, 2025. The Section 179 deduction limit has also been raised to $2.5 million. For businesses that own their equipment through a $1 buyout, this means the full asset cost can potentially be written off in year one.

If you’ve read older articles comparing these lease types, many of them tout FMV leases as “off-balance-sheet” financing. That was true under the previous accounting standard (ASC 840) — but it’s no longer the case.

ASC 842, which took effect for public companies in 2019 and private companies shortly after, requires all leases, both operating and finance, to be recognized on the balance sheet as ROU assets and lease liabilities. The “hidden liability” advantage of operating leases is gone.

So what still differs between the two?

• Expense recognition. Operating leases (FMV) record a single straight-line expense each period. Finance leases ($1 buyout) split the expense into depreciation and interest, which results in higher total expense in the early years of the lease.
• EBITDA treatment. Operating lease expense is an operating cost that reduces EBITDA. Finance lease depreciation and interest sit below the EBITDA line. For organizations where EBITDA drives valuations, covenant compliance, or executive compensation, this distinction matters.

CHG-MERIDIAN works with enterprise organizations to structure IT equipment leases that fit their financial strategy, not the other way around. Whether an FMV lease, a $1 buyout, or a blended approach across your portfolio, our team helps you evaluate the right structure for each asset class and deployment.

But lease structuring is only one piece. We manage the full IT equipment lifecycle from planning through execution: procurement, deployment, ongoing asset management, and end-of-life handling including certified data destruction and compliant disposal. That means you get the financial flexibility of leasing without the operational burden of managing aging technology in-house.

If you're planning an IT refresh or evaluating your current lease portfolio, talk to our team about what the right structure looks like for your organization.

Responsibility depends on how the return process is structured in your lease agreement. With a well-structured FMV lease, the lessor should provide certified data destruction and documentation for compliance purposes — this should be confirmed before signing, not at end of term. CHG-MERIDIAN includes certified data destruction and compliant disposal as part of its standard IT lifecycle process.