TRAC Leases

TRAC (Terminal Rental Adjustment Clause) Lease

A tax-oriented lease of titled motor vehicles or trailers contains the fixed purchase amount and otherwise complies with true lease requirements according to IRS rules. At the end of the lease term, the lessee must either purchase the vehicle for a fixed price or sell the vehicle to a third party. If the vehicle is sold to a third party the lessee may retain any excess over the purchase option amount. However, if the vehicle is sold below the purchase option amount, then the lessee must pay the leasing company the difference between the sales price and the purchase option amount.

Additional Requirements

Lessee must sign statement that he/she intends to use vehicle for business over 50% of the time.

Advantages

Example

M.S.R.P.                                 $55,000

Discounts                                ($5,000)

Net Price                                 $50,000

 Fixed purchase amount at the end of the lease term

(30% of net price)                       15,000

 At the end of the lease term:

1. Lessee can purchase the vehicle for $15,000

2. Lessee or lessor can sell the vehicle

Sell price $20,000, lessee retains $5,000

Sell price $13,000, lessee pays lessor $2,000.