Analysis shows lessors face disallowed interest at double the rates of non-lessors, nearly triple for railcar lessors

Washington, DC, May 29, 2025 – Two key provisions of the Tax Cuts and Jobs Act (TCJA)—bonus depreciation and the Section 163(j) interest deduction limitation—have had very different effects on the $1 trillion equipment leasing and finance industry. According to a new study released by the Equipment Leasing & Finance Foundation (Foundation), while bonus depreciation made equipment investment more attractive by allowing immediate expensing, it appears to have encouraged firms to purchase rather than lease capital assets. In contrast, the interest limitation—particularly after it tightened in 2022 (changing from a 30% of EBITDA cap to a 30% of EBIT cap)—led to sharp increases in leasing, but not without a downside for lessors.

The study, “The Effect of the Tax Cuts & Jobs Act on Leasing: Evidence from the Past with Implications for the Future,” shows that under the 30% of EBIT limitation, lessors now face disallowed interest at rates double those of non-lessors, and for railcar lessors, nearly triple. These results reinforce the earlier prediction that operating lessors—particularly in capital-intensive industries like rail—are disproportionately impacted by the Section 163(j) interest limitations.  

“The continued ratcheting down of two TCJA provisions—100% expensing and the limit on interest deductibility—could hit the equipment finance industry hard,” said Leigh Lytle, Foundation President and President and CEO at ELFA. “Leasing may look better to customers, but it’ll cost more to offer. 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 study, prepared by Jeff Hoopes, a professor at the University of North Carolina and the research director of the UNC Tax Center, and Jake Thornock, a professor of accounting at Brigham Young University, delves into:

• Review of taxation of leasing
• Literature on the TCJA’s effects on investment, and academic literature on the effects of bonus deprecation on investment and interest deductibility
• Aggregate trends in leasing behavior before and after the TCJA’s implementation
• Original micro-level data analysis of firm-specific leasing and investment decisions in response to the TCJA and its provisions, and what that might mean as less of capital investment is available to be depreciated under bonus depreciation

Download the full report at https://www.leasefoundation.org/industry-research/tax-cuts-and-jobs-act.

All Foundation studies are available for free download from the Foundation’s online library at http://store.leasefoundation.org/.

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About The Foundation
The Equipment Leasing & Finance Foundation is a 501c3 non-profit organization with a mission to advance the $1.3 trillion equipment finance sector by producing data-forward research and market outlooks, as well as cultivating the next-generation workforce through Campus to Career programs, including curriculum development and collegiate scholarships. Founded in 1989 and 100% funded through charitable donations, the Foundation drives innovation and career development for the future of the industry. www.leasefoundation.org

 

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