What tax benefits does a true lease allow the lessor to claim?

• A. Cost recovery and lease payments
• B. Depreciation and interest deductions
• C. Tax credits and grant subsidies
• D. Capital gains exemptions

Answer: (B)

In a true lease, the lessor keeps ownership of the asset for tax purposes, which lets them claim two main deductions: depreciation (cost recovery) of the asset over its useful life, and the interest deduction on any debt used to finance the purchase. Depreciation reduces the lessor’s taxable income as the asset ages, and interest on financing reduces taxable income as well. The lease payments are paid by the lessee and are generally deductible by the lessee as rent, not deductions the lessor takes. The other options—tax credits and grants, or capital gains exemptions—aren’t the typical ongoing tax benefits tied to owning and leasing the asset.