Buying vs. Leasing Construction Equipment

Construction companies face a constant decision about whether to buy or lease equipment. It’s an operational question, but it’s also a financial choice that can influence every part of the business. It affects cash flow, tax planning, financial reporting, and whether a company has the financial capacity to take on more work.

This decision has taken on greater importance in the current market. Equipment costs remain high, borrowing is more expensive, and technology is evolving at a rapid pace. Companies will want to carefully weigh when ownership delivers the most value and when leasing provides the flexibility to protect margins. To help clients, prospects, and others, JLK Rosenberger has summarized the key details below.

Background

Ownership continues to play a central role in construction. Contractors often prefer to buy the equipment they rely on every day, such as loaders and excavators. That makes sense economically because the cost per hour is lower over time, even after accounting for maintenance and depreciation. Many companies also value the ability to have immediate access to equipment.

That said, the global rental market is expected to surpass $280 billion by 2030, and in the United States, nearly 75% of contractors reported leasing equipment last year. Rental providers are expanding their fleet sizes and offering models equipped with telematics, remote monitoring, and lower-emission engines. These features enable the tracking of performance and experimentation with new technology without committing to ownership.

Buying Equipment

Ownership remains the traditional model for high-use equipment. Large items, such as bulldozers, are often purchased because they are essential to daily operations. Buying provides stability, control, and the opportunity to build long-term value.

From a financial standpoint, purchased equipment is recorded as an asset, strengthening the balance sheet and improving bonding capacity. Tax rules allow for depreciation to be deducted, and depending on the year, Section 179d and 100% bonus depreciation. The combination can result in significant savings that can make purchasing a much more attractive option.

Ownership also provides independence. Contractors can move equipment between sites without waiting for availability and can customize machines with attachments or technology. That helps avoid disruptions, especially when several projects are running simultaneously.

But ownership can be expensive, often requiring financing at interest rates higher than in past years. Capital used for equipment is not available for payroll or new bids, and of course, maintenance, storage, and insurance are monthly responsibilities. Resale values can be unpredictable, and older equipment eventually loses efficiency.

Ownership generally works for companies with steady pipelines and high opportunity for utilization. In those cases, the economics and the operational control may outweigh the risks.

Leasing Equipment

Leasing has expanded quickly because it preserves cash flow. Rather than using large sums upfront, payments are spread over time, leaving liquidity for payroll and project costs. Lease payments are deductible, and many agreements include service and repair, reducing the risk of downtime.

For many companies, leasing makes sense when equipment is expensive to own but not used every day. A paving machine may be vital for a few months and then sit idle for the rest of the year. Renting covers that period and avoids unnecessary carrying costs. Another advantage is that rental fleets are replaced more often, giving contractors access to newer equipment with improved fuel efficiency, lower emissions, and built-in monitoring tools.

However, leasing can become more expensive than buying if the same machine is rented several times, and availability is not always guaranteed during peak construction periods. Under current accounting rules (ASC 842), most leases are reported on the balance sheet as right-of-use assets with corresponding liabilities, which can impact financial ratios and bonding decisions. Unlike ownership, leasing does not build equity or company value.

Key Considerations

• Cash flow is the starting point for most companies. Buying ties up a significant amount of capital, often through financing. That capital could otherwise cover payroll, fund materials, or support new bids. At the same time, ownership creates an asset on the balance sheet, and that can improve bonding capacity. Leasing looks very different. Payments are smaller and spread out, which leaves more liquidity to work with. The question becomes whether preserving cash today is more valuable than building equity over time.
• Tax planning comes right after cash flow. Ownership allows for depreciation, and depending on the year, accelerated options such as Section 179 or bonus depreciation can provide a real benefit. Leasing is treated as an expense, so the deduction is immediate but does not leave a long-term asset. The right decision often depends on the company’s current tax position and the amount of income it needs to offset. A contractor with steady profits may prefer the depreciation that comes with ownership, while a firm with variable earnings may lean toward the predictability of leasing.

Other factors include how often the equipment will be used, who handles maintenance, and the level of risk a company is willing to carry. Consulting an experienced advisor, like the construction team at JLK Rosenberger, is recommended.

Contact Us

The industry is shifting toward a hybrid strategy, where ownership and leasing complement each other. Core equipment is purchased, while rentals fill gaps for temporary or specialized needs. Each construction business needs to examine the particulars of cash flow, tax planning, and risk.

If you have questions about the information outlined above or need assistance with another tax or accounting issue, JLK Rosenberger can help. For additional information, call 949-860-9902 or click here to contact us. We look forward to speaking with you soon.