The passage of the One Big Beautiful Bill Act (“OBBBA”) in 2025 reshaped federal tax rules and incentives for both businesses and individuals, shifting traditional lending economics in the process. More ESOP-owned companies are discovering how tax-advantaged lease financing can dramatically lower payments, free up cash, and fuel long-term growth and repurchase obligation strategies. Let’s take a closer look.

With OBBBA reshaping lending economics, ESOP-owned companies are increasingly turning to tax-advantaged leasing to lower payments, preserve cash, and strengthen long-term growth and repurchase-obligation strategies.

Because 100% ESOP S corporations gain little value from depreciation, leasing allows them to capture tax benefits they would otherwise forfeit—resulting in lower, predictable payments and stronger free cash flow. And while the ASC 842 lease accounting standard changes balance sheet presentation, it doesn’t change the economic advantage that leasing delivers.

In this environment, the lease-versus-buy decision becomes a strategic one: ESOPs must balance liquidity, asset-life expectations, and obsolescence risk against the flexibility and cashflow efficiency that tax-advantaged leasing provides.

In a tax lease, the lessor owns the equipment for tax purposes and claims depreciation. The ESOP company pays for use of the asset, with fair-market-value purchase, renewal, or return options at term end. Because the lessor monetizes depreciation (now supported by permanent 100% bonus depreciation), lease payments are often lower than a comparable loan amortization for a 100% S-Corp ESOP. Timing rules—acquisition dates, placed-in-service requirements, and eligibility for used property—remain important in structuring these transactions.

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  Tax-exempt structure: A 100% S-Corp ESOP generally does not pay federal income tax, minimizing the value of depreciation from owned assets.

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  Embedded tax benefits: In a tax lease, the lessor claims depreciation and passes the savings through in the form of more attractive pricing.

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  Fixed-rate simplicity: Predictable payments are especially valuable in a rising interest rate environment.

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  End-of-term flexibility: ESOP companies retain the option to buy at fair market value (the price a willing buyer and seller would agree to in an arm’s-length transaction), renew, or return assets vulnerable to obsolescence.

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  Post-OBBBA tailwind: Permanent bonus depreciation and broader eligibility enhance lessor tax capacity, widening the price advantage for ESOP lessees.

Recent OBBBA changes strengthen the case for leasing:

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  Permanent 100% bonus depreciation for assets placed in service after Jan. 19, 2025 enhances lessor tax benefits and can translate into lower lease rates.

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  Temporary 100% expensing for qualified production property benefits certain U.S. manufacturing facilities during defined construction and in-service periods, though nonproduction areas typically do not qualify.

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  Higher Section 179 limits help taxable buyers, but ESOPs benefit indirectly through improved lease economics. Section 179 also allows businesses to immediately expense qualifying equipment up to the annual limit rather than depreciating it over time, improving cash flow for taxable purchasers.

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  Return to an EBITDA-based interest-deduction test improves borrowing economics for taxable companies—an important context when comparing market alternatives.

Collectively, these provisions increase lessor tax capacity and often widen the economic gap between leasing and buying for tax-exempt ESOPs.

For many ESOPs, leasing is the superior choice when liquidity, risk management, or financial flexibility are top priorities. In these instances, leasing allows ESOPs to:

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  Preserve cash with lower payments and capture the lowest available financing cost

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  Reduce exposure to technological and asset-life risk

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  Lock in predictable, fixed payments

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  Maintain balance sheet and strategic flexibility

Ownership becomes the stronger choice when long-term control, asset stability, or operational flexibility outweigh the liquidity benefits of leasing, allowing ESOPs to:

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  Maintain full control of assets by using available cash

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  Avoid repossession risk and retain the option to sell assets in a downturn

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  Preserve agility when asset needs may shift and lease prepayment penalties may be restrictive

In a post-OBBBA world, tax-advantaged leasing has become one of the smartest ways for ESOP-owned companies to lower payments, preserve cash, and strengthen long-term financial flexibility. For 100% ESOPs that don’t pay federal income tax, leasing turns missed tax benefits into real savings while fueling growth and helping meet repurchase obligations. ESOP leaders who use leasing strategically can unlock meaningful liquidity and support stronger, more sustainable value for employee-owners.

_{Disclaimer
This material is provided for informational purposes only and does not constitute tax, legal, or accounting advice. BMO, BMO Corporate Advisory, and their respective affiliates are not tax advisors, and this content should not be relied upon as a substitute for advice from a qualified tax professional. Readers should consult their own tax, legal, and accounting advisors regarding the tax consequences of any transaction or strategy discussed herein.}