Tax benefits of leasing

•We offer two general characterizations of the tax benefits of leasing.•We rely on tax neutrality of present value or economic depreciation.•One way compares actual tax depreciation with tax-neutral depreciation.•The other compares actual rents with tax-neutral rents.

Financial economists view the tax benefits of leasing as transaction-specific functions of the tax effects of rents, depreciation, and interest attributed to lessors and lessees facing different tax rates. We offer two conceptual ways to characterize those tax benefits.