# $1 Buyout or FMV lease? Your hour meter decides > A $1 buyout lease and a fair-market-value lease end in very different places. For a skid steer or loader that runs high hours, the hour meter and the return clause decide which one fits. By Elie Mendlow · Published November 9, 2026 Section: Business Funding › Grants · Series: Contractor Desk (https://mcafax.com/notebook/series/contractor-desk) Canonical: https://mcafax.com/notebook/contractor-lease-buyout-1-vs-fmv Source: MCAFax, The Broker's Notebook (https://mcafax.com/notebook). MCAFax is not a lender or a law firm. --- Which skid steer lease costs more: $1,750 a month or $2,250? The cheaper one can end with a $30,000 return bill. Same machine. One quote ends with a $1 check. The other ends with an hour meter inspection. For a contractor running a skid steer or loader hard, the decision factor is annual hours. A $1 buyout lease acts like financing the purchase, so heavy hours mostly cost you resale value. A fair-market-value (FMV) lease often costs less per month, but return conditions and excess-hour charges land at the end. General info, not legal or financial advice. ## What is the real difference between a $1 buyout and an FMV lease? The difference is who owns the machine when the payments stop. On a $1 buyout lease, you pay the term and then buy the machine for a dollar. On an FMV lease, you choose at the end. You can return it under the return terms, renew, or buy it at a fair market value set then. You don't know that price on day one. The Uniform Commercial Code draws the same line. Under UCC 1-203, a lease you can't cancel that lets you become the owner for nominal extra money creates a security interest, not a true lease: https://www.law.cornell.edu/ucc/1/1-203. In plain terms, a $1 buyout behaves like a purchase with financing. Neither one is a merchant cash advance. Both are equipment finance products tied to a specific machine. ## Why does the hour meter matter more on an FMV lease? On an FMV lease, the lessor plans to get the machine back and resell or re-lease it. Its value at return depends on hours and wear. So FMV leases often set an annual hour allowance and charge for hours above it, plus damage beyond normal wear. Read these lines before you sign: - Annual hour allowance and the charge per excess hour - Return condition standard for tracks, tires, buckets and glass - Who inspects at return, and whether you can attend - Shipping cost to return the machine - How the end-of-term purchase price gets set On a $1 buyout, none of that applies. The hours are your problem only when you sell. ### Worked example All names and numbers are made up. Ridgeline Grading needs a $70,000 skid steer. Two 36-month quotes arrive. FMV lease: $1,750 a month, 1,500 hours a year allowed, $25 per excess hour. Ridgeline runs 1,900 hours a year. That is 400 extra hours a year, or 1,200 over 3 years. At $25 an hour, the return bill is $30,000. Payments total $63,000. Total to walk away: $93,000, and no machine. $1 Buyout lease: $2,250 a month. Payments total $81,000, plus $1. Ridgeline owns a worn machine with resale value. At 1,000 hours a year, the FMV lease looks different. No excess charge, $63,000 total, and a machine to hand back. Same quotes, opposite answer. The hour meter decided. ## How does each one look for taxes? The IRS says you can depreciate leased property only if you keep the incidents of ownership. Those include legal title, the obligation to pay for the property, and paying maintenance and taxes: https://www.irs.gov/publications/p946 Under a true lease, you generally can't depreciate the machine. A $1 buyout may be treated as a purchase instead. That is a call for your CPA, using the actual lease. Section 179 basics for purchases are in Publication 946. ## Which one fits a high-hours contractor? Match the lease to how long you'll keep the machine and how hard you run it. - High hours, keep it for years: a $1 buyout or an equipment loan usually fits. SBA 7(a) loans can also be used to buy machinery and equipment through a lender: https://www.sba.gov/funding-programs/loans/7a-loans - Low hours, swap it every few years: an FMV lease can cost less. - Not sure about hours: pull last year's hour meter readings from a similar machine. Log the hour meter and take dated photos at delivery. Do the same at return. ## What should you do before signing? 1. Write down last year's hours on your closest machine. 2. Ask both quotes for the hour allowance, excess-hour charge and buyout price in writing. 3. Run the worked example math with your own numbers. 4. Ask your CPA how each lease would be treated. Loan vs lease basics: https://mcafax.com/notebook/contractor-equipment-loan-vs-lease. Buy, lease or rent by utilization: https://mcafax.com/notebook/contractor-buy-lease-or-rent-excavator. The contractor funding guide: https://mcafax.com/notebook/construction-business-loans. How equipment finance differs from a merchant cash advance: https://mcafax.com/notebook/equipment-financing-vs-merchant-cash-advance. Funding types side by side: https://mcafax.com/notebook/where-to-get-business-funding ## Questions readers ask **Is a $1 buyout lease the same as a merchant cash advance?** No. It is an equipment lease that ends with you owning the machine. A merchant cash advance is generally a sale of future receivables with a different cost structure. **Can I negotiate the hour allowance on an FMV lease?** You can ask. Get any change in writing in the lease itself, not in an email from the sales rep. **What if I want out of either lease early?** Ask for the early payoff or termination amount in writing before you sign. Early termination terms vary by lessor and can be expensive. **Does a $1 buyout lease show up as debt?** How it is booked and taxed is a question for your CPA. The answer turns on the full lease terms, not the name on the paperwork.