Definition of 'Leveraged Lease'
There are two main types of leveraged leases:
* **Tax-oriented leveraged leases:** These leases are structured in a way that minimizes the lessor's taxes. This is done by allocating as much of the depreciation as possible to the lessee.
* **Non-tax-oriented leveraged leases:** These leases are not structured to minimize the lessor's taxes. Instead, they are structured to maximize the return on investment for the lessor.
Leveraged leases can be used for a variety of assets, including aircraft, ships, and real estate. They are often used by companies that need to acquire assets but do not have the cash available to do so.
There are a number of advantages to using a leveraged lease, including:
* The lessee can obtain the use of an asset without having to make a large upfront investment.
* The lessor can earn a return on investment by leasing the asset to the lessee.
* The lease payments can be used to offset the lessee's income taxes.
However, there are also a number of disadvantages to using a leveraged lease, including:
* The lessee may be required to make a down payment on the asset.
* The lessee may be responsible for maintenance and repairs on the asset.
* The lessee may be required to purchase the asset at the end of the lease term.
Overall, leveraged leases can be a good option for companies that need to acquire assets but do not have the cash available to do so. However, it is important to carefully consider the advantages and disadvantages of using a leveraged lease before making a decision.
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