Journal of Business & Economic Policy

ISSN 2375-0766 (Print), 2375-0774 (Online) DOI: 10.30845/jbep

Synthetic Lease Purchase of an Asset Using a HELOC
Gary E. Powell, CFA

This paper illustrates how an individual with access to a home equity line of credit (HELOC) can effectively structure a synthetic lease financing arrangement for a car that allows for the deduction of interest expense. The paper begins by illustrating the difference between amortizing a loan to zero (full amortization) and amortizing a loan to a residual amount (partial amortization). I demonstrate how a lease financing arrangement for an asset is, in fact, a partially-amortized loan to the residual value of the asset. Next, I show how an individual with access to a HELOC can create a homemade synthetic lease financing arrangement that may allow for tax deductibility of the interest payments on the HELOC.I then address relevant features of the tax code that allow interest payments to be tax deductible. Finally, I discuss some potentially important differences between a conventional lease and the homemade synthetic lease.

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