New report reveals impact of TCJA on US equipment finance industry

A new report from the Equipment Leasing & Finance Foundation highlights how two key provisions of the Tax Cuts and Jobs Act (TCJA) have delivered sharply contrasting outcomes for the $1 trillion US equipment finance and leasing industry, benefiting some while significantly burdening others.

The study, titled “The Effect of the Tax Cuts & Jobs Act on Leasing: Evidence from the Past with Implications for the Future,” reveals that lessors now face disallowed interest deductions at double the rate of non-lessors, and nearly triple for railcar lessors. This is primarily due to the tightening of the Section 163(j) interest deduction limitation, which since 2022 has been calculated based on 30% of EBIT rather than EBITDA, limiting the deductibility of interest for capital-intensive businesses.

At the same time, the bonus depreciation provision – which allows for 100% expensing of eligible capital assets – encouraged many firms to buy rather than lease equipment, subtly shifting market behaviour and reducing leasing demand in some segments.

“Leasing may look better to customers, but it’ll cost more to offer,” said Leigh Lytle, Foundation President and CEO of the Equipment Leasing and Finance Association (ELFA).

“If Congress doesn’t act, those higher costs will land on small businesses. This study makes it clear: we need permanent 100% expensing and relief from the interest cap to keep equipment investment moving.”

The research, conducted by professors Jeff Hoopes of the University of North Carolina and Jake Thornock of Brigham Young University, provides a detailed analysis of how firms adjusted their leasing and investment strategies following the implementation of the TCJA. Using both industry-wide trends and micro-level firm data, the study explores how changes in tax policy have reshaped decisions across the finance landscape.

The authors underscore that the combined effect of winding down bonus depreciation and tightened interest limits could significantly impact operating lessors, particularly those in asset-heavy industries such as rail, aviation, and energy.

The Foundation warns that without policy intervention, the increased costs of leasing under current tax constraints may be passed on to customers – many of them small and mid-sized businesses – thereby limiting access to capital and potentially slowing broader economic growth.