How the calculation works

The comparison runs over the lease term. Buying means paying the price now (or borrowing it), owning the equipment for the term and ending up with its value at the end. Leasing or subscribing means paying the monthly amount for the term and returning the equipment, or buying it out.

Buy, for each year of the term:

  • Purchase: the full price now, or with a loan, one payment a year: price × i ÷ (1 − (1 + i)−n) at loan rate i over n years. If the loan runs past the lease term, the remaining balance is paid off at the end of the term.
  • Depreciation: 100% in year 1 (the special depreciation allowance, which IRS Publication 946 (2025) says applies to certain qualified property acquired and placed in service after January 19, 2025 unless you elect out), MACRS 5-year (20%, 32%, 19.2%, 11.52%, 11.52% and 5.76% of the price, the publication’s percentages for 5-year property with the half-year convention), or a simplified straight-line schedule (the price ÷ the useful life in equal amounts, with no convention and no salvage value; closer to book depreciation than to an IRS method).
  • Tax savings: tax rate × (depreciation + loan interest).
  • End of term: the equipment is counted as if sold for its value at that point, with tax on the difference between that value and what is left undepreciated. A loss gives a tax saving.

Lease, for each year: 12 × the monthly payment, less tax rate × the payments, since they are deducted as rent. With a buyout, the buyout is paid at the end and you keep the equipment, which is counted at its end-of-term value the same way as on the buy side.

Lease treated as a purchase (an option when there is a buyout): the calculator finds the interest rate built into the lease, the monthly rate at which the payments and the buyout repay the purchase price, and deducts depreciation of the price (with the method you chose) plus that interest instead of the payments. At the end you own the equipment, counted at its end-of-term value with tax on the gain or loss, as on the buy side. The purchase price is taken as the amount financed, so the payments and buyout must add up to at least the price.

Timing and totals: a cash purchase is paid now (year 0), and every other amount is counted at the end of its year. Total is the sum of every year. Present value = year 0 + each year ÷ (1 + discount rate)year, the convention of a spreadsheet’s NPV function plus the amount spent today. With a discount rate, the cheaper option is the one with the lower present value; without one, the lower total.

What it leaves out: state taxes, Section 179 expensing, the election to take a smaller special allowance, the half-year rule in the year of a sale, lease payment escalators, maintenance that differs between the options, and the cost of disposing of equipment. It is a planning estimate, not tax or accounting advice.

Worked example

A company needs $90,000 of server and storage equipment and expects it to be worth $20,000 after 3 years. It could pay cash and depreciate it as MACRS 5-year property, or lease it for $2,800 a month for 3 years and hand it back. Its tax rate is 25% and it uses an 8% discount rate.

Buy:

  • Now: $90,000.
  • Depreciation: $18,000, $28,800 and $17,280 in years 1 to 3, saving $4,500, $7,200 and $4,320 of tax.
  • End of year 3: the equipment is worth $20,000 but has $25,920 left undepreciated, so the $5,920 loss saves $1,480 of tax. Year 3 nets to −$25,800 (money back).
  • Total $52,500; present value $59,180.

Lease:

  • $33,600 a year in payments, $25,200 after the 25% tax deduction.
  • Total $75,600; present value $64,943.

Buying costs $5,763 less in present value. With 100% depreciation in year 1 instead of MACRS, the total after tax stays $52,500, but the tax saving arrives sooner, and buying comes out $7,684 cheaper.

CapEx, OpEx and the budget

The cheaper option on paper isn’t always the right one. Buying ties up cash and needs a capital budget; leasing or a subscription such as hardware as a service or desktop as a service comes out of the operating budget and can include support and refresh. Leases also lock you into a term, often with end-of-term conditions on returning equipment, so read the return and renewal terms as closely as the payment. To compare more than two options, or to add staff time and migration costs, use the IT TCO calculator.