EFA vs. FMV Lease: What's Actually Different
Vendor finance reps use "lease" to mean two completely different structures. Equipment Finance Agreement (EFA) is economically a loan with title transfer at $1 at term-end. Fair Market Value (FMV) lease keeps the equipment off your books and ends with a buyout at fair market value. The tax and economic differences are large.
EFA — the loan-in-lease-clothing
An EFA is a security-interest loan. You take title to the equipment at signing (in some structures) or at $1 buyout at term-end (in others). The lender has a UCC lien on the equipment. Payments are level. There's no end-of-term surprise: you own the equipment at the end.
Tax treatment: lessee depreciates the equipment. Section 179 is available to you. Payments include a principal and interest split (the interest portion is deductible).
FMV lease — the operating lease
An FMV lease is an operating lease. The lessor owns the equipment and depreciates. You expense the lease payments as an operating expense (fully deductible). At term-end you have three choices: return the equipment, buy it at fair market value (typically 10–25% of original cost), or extend the lease.
Tax treatment: no Section 179 for the lessee. The deduction comes through the rental expense — slower than the upfront 179 deduction but spread over the lease term.
When EFA wins
Long-life equipment you plan to keep (CBCT, chairs, sterilization). High current-year tax bill where Section 179 immediate deduction is worth more than spread-out lease deduction. Established practice with stable cash flow.
When FMV wins
Fast-refresh-cycle equipment (chairside CAD/CAM, maybe IOS). DSO or multi-location practice managing balance-sheet covenants — keeping the equipment off the books matters. Current year with no taxable income to absorb a Section 179 deduction.