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CLFP EXAM - Classification & Terminology in Leasing- Qs & As
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CLFP EXAM - Classification & Terminology in Leasing- Qs & As
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CLFP EXAM - Classification & Terminologyin Leasing- Qs & As
What is Section 179? Correct Ans-A provision of the IRS, which allows the taxpayer to elect
to deduct certain types of property as a direct expense against income rather than depreciating
the asset over its tax life, as set forth by the IRS
What is a Service Lease; Gross Lease; Maintenance Lease (also form of Operating Lease)?
Correct Ans-A lease in which the lessor provides such service as maintenance and care for
the lease property. The cost of such service may be built into the lease, or it may be paid for
under a separate maintenance agreement that the lessee was required to purchase.
What is a Single Investor Lease? Correct Ans-A lease under which the lessor is fully at risk for
all funds (both equity and pooled funds) used to purchase the equipment, and is a two party
transaction between lessor and lessee.
What is a Step Payment Lease? Correct Ans-A lease that contains a payment stream that
requires the lessee to make payments that either increase (step up), or decrease (step down) in
the amount over the term of the lease.
What is a Skipped Payment Lease? Correct Ans-A lease that contains a payment stream that
permits the lessee to make payments only during certain periods each year
, What is a Structured Lease? Correct Ans-An lease which is the result of the pooling together
of such components as lease pricing, payment modifications, end of term options, funding and
residual considerations, and lease terms and conditions, any or all of which are typically not
conventional or standard.
What is a Sub Lease? Correct Ans-An agreement in which the lessee in the lease assigns the
lease, including right to possession and use of the asset, to a third party, thereby making the
original lessee a sub-lessor an the new party a sub-lessee. Most lease agreement prohibit
subleases, or at minimum require the original lessor's approval
What is Tax Accounting? Correct Ans-The method of accounting used to report a company's
financial activity for tax reporting purposes, as prescribed by the IRS.
What is Term Loan? Correct Ans-Any loan with a fixed monthly payment.
What is TRAC Lease? Correct Ans-A lease on a qualified automobile, truck or trailer, which
may be considered a true lease for federal income purposes even though it contains a Terminal
Rental Adjustment Clause (TRAC), but which effectively guarantees the lessor the residual value.
Note the existence of a TRAC does not guarantee true lease status. In order to qualify as a true
lease for fed income tax purposes, the lessor must also:
1.) Maintain an min. at risk position equal to the borrowings used to fund the vehicle;
2.) Obtain a lessee certification that the lessee will use the vehicle more than 50% for business.
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