Lease vs buy CNC machine: the short answer
Buy the CNC machine if your shop pays federal income tax, will run the machine past five years and can borrow below the lease's implicit rate: 100% bonus depreciation cuts the after-tax cost sharply in year one. Lease if you cannot use the deduction, expect fast obsolescence, or the lessor passes its tax benefit through as a low rate.
Take a plant finance team holding a purchase order for a $500,000 to $900,000 five-axis or horizontal machining center, with a signature due before the fourth quarter. On Sept. 16 the Federal Open Market Committee voted 12-0 to raise its target range by a quarter point to 3.75% to 4.00%. The new range took effect Sept. 17, according to the Fed's implementation note. The September dot plot points to one more hike before year-end. That makes the decision feel like a timing call. For most profitable shops, the numbers below show it is really a tax decision and a bet on resale value.
What moved, and what did not
The FOMC statement said "inflation remains elevated" and that the increase "will support a timelier return to the Committee's 2 percent goal." It gave no explicit guidance on future moves. The Fed also raised the interest rate on reserve balances to 3.90% and the primary credit rate to 4.0%, both effective Sept. 17.
The Summary of Economic Projections shows where policymakers expect to go next. The median projection for the federal funds rate is 4.1% at the end of 2026, 4.1% at the end of 2027, 3.9% at the end of 2028 and 3.2% over the longer run. For 2026, 12 participants placed their dot at 4.125%, which implies one more quarter-point hike. Four placed it at 4.375% (two more hikes) and two at 3.875% (no further move). Median projected 2026 PCE inflation is 3.7%, with core at 3.4%.
For a 60- to 84-month equipment deal, the overnight rate matters less than term yields. Lenders and lessors price five- to seven-year equipment paper off term benchmarks plus a spread. The Fed's H.15 release for Sept. 16 showed:
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Effective federal funds rate: 3.63% (the day before the hike took effect)
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2-year Treasury: 4.74%
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5-year Treasury: 4.86%
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7-year Treasury: 4.94%
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10-year Treasury: 5.01%
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Bank prime loan rate: 6.75% (a pre-hike reading; confirm your lender's current prime before you model a floating-rate line)
The 10-year eased to about 4.94% on Sept. 17, per Trading Economics. Long rates sit near 5%, not above it. For a machine tool buyer, the 5- and 7-year yields are the ones to watch.
The rate you pay on each path
Loan. A bank or captive finance loan is usually quoted as a Treasury or swap benchmark plus a credit spread. The rate is visible, so you can compare it directly to other quotes.
Lease. A lease payment bundles three things: the lessor's cost of funds, its assumption about what the machine will be worth at the end of the term (the residual), and whatever share of its own tax benefit it chooses to pass through. A quoted money factor or monthly payment hides all three. Ask the lessor in writing for the implicit interest rate and the residual assumption behind the payment. Without those two numbers you cannot compare a lease to a loan.
Credit conditions. Money is available, but lenders are getting pickier at the margin. The Equipment Leasing and Finance Association's CapEx Finance Index recorded a record $14.3 billion of seasonally adjusted new business volume in July, $2.8 billion (24.5%) above the prior monthly high. Year-to-date volume is up 16.8%, and captive finance volume rose 94.1% from June. Over the same month the approval rate fell 2.1 points to 77.4%, delinquencies rose to 1.8% from 1.7%, and the loss rate was 0.46%. ELFA forecasts $137.3 billion of volume for full-year 2026. Its Monthly Confidence Index held at 63.7 in July, but only 22.7% of equipment finance executives expected business conditions to improve over the next four months, down from 30.4% in June. Strong borrowers should get quotes. Weaker credits should expect wider spreads and more conditions.
The tax rules that drive the answer
Bonus depreciation is permanent at 100%. Under the One Big Beautiful Bill Act, qualified property acquired after Jan. 19, 2025 is eligible for 100% first-year bonus depreciation, and that treatment is now permanent. IRS Notice 2026-11, issued Jan. 14, 2026, sets out the rules. The acquisition date is the trigger. If you signed a binding written contract for the machine before Jan. 20, 2025, it does not qualify. The notice also lets a taxpayer elect a smaller percentage (40%, or 60% for longer-production-period property) instead of the full 100%.
Section 179 is a second route. For 2026 the Section 179 expensing limit is $2,560,000. It is reduced dollar for dollar once qualifying property placed in service tops $4,090,000 and disappears at $6.65 million, per Section179.org's summary of Rev. Proc. 2025-32. Either route can expense a $750,000 machining center in the year it goes into service. Which one to use, and how your state treats it, is a question for your tax adviser.
A true lessee gets neither. IRS Publication 946 says a lessee "generally cannot depreciate its cost because you do not retain the incidents of ownership," and Section 179 property must be "acquired by purchase." Under a true lease, the lessor owns the machine and takes the depreciation. The lessee typically deducts its lease payments as a business expense over the term. A $1-buyout lease or conditional sale agreement is a different animal: for tax purposes it is treated as a purchase, so the shop claims the depreciation even though the paperwork says "lease."
Timing matters. The deduction lands in the tax year the machine is placed in service, meaning installed and ready for use, not the year the PO is signed. A machine that ships in December but is not commissioned until February may push the deduction into the next fiscal year.
The deduction is only worth something if you have income to offset. A shop with losses or net operating loss carryforwards gets little or no near-term value from a year-one write-off. That single fact flips many lease vs buy decisions.
Residual value and obsolescence: who holds the risk
Under a fair market value (FMV) lease, the lessor carries resale risk. You hand the machine back at the end, and a weak used market is the lessor's problem. When you own the machine, you carry that risk, and you keep the upside if the used market is strong.
Several factors shape that risk on a CNC machine: control and software generations, spindle hours, and how quickly a newer platform makes yours less competitive for the work you quote. Demand also affects resale. The USMTO report for July 2026 put U.S. metalworking machinery orders at $605.8 million, down 8.0% from June but up 55.2% from a year earlier. Year-to-date orders reached $4.03 billion, up 37.1%, while units rose only 13.0%. Average machine value is rising, so shops are buying more capable, more expensive machines. July was the fifth straight month above $500 million, only the second such run since 1998. Job-shop orders fell 1.3% from June while units rose 2%.
No verified 2026 source gives typical residual values for used machining centers or typical CNC lease money factors. The model below therefore treats residual value as an assumption band, not a fact.
A worked comparison on a $750,000 machine (illustrative)
This is a simplified model with stated assumptions, not a quote or a sourced benchmark. Plug in your own numbers.
Assumptions:
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Machine cost: $750,000; term: 60 months; payments monthly in arrears.
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Loan rate: 7.5% fixed, roughly the 5-year Treasury (4.86%) plus a spread of about 2.6 points. Your spread will differ.
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FMV lease, two versions: one priced at a 7.5% implicit rate, and one where the lessor passes part of its tax benefit through as a 5.0% implicit rate. Both assume a 35% residual.
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Tax: 21% federal rate only; state tax is excluded. Buyer takes 100% bonus depreciation, with the $157,500 tax saving ($750,000 x 21%) received at the end of year one.
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Resale at year five: 35% of cost ($262,500), treated as fully taxable because the basis was deducted in year one. Band tested: 25% to 45%.
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Costs are discounted at the after-tax borrowing rate, 7.5% x (1 - 0.21) = about 5.9%. This is the standard lease vs buy method because it treats the loan and the lease as equivalent financing. For a shop that pays no tax, the discount rate is the pre-tax 7.5%.
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Maintenance, insurance, tooling and installation are assumed equal under both paths and excluded.
| Scenario | Buy with loan at 7.5% | FMV lease, 7.5% implicit | FMV lease, 5.0% implicit | | --- | --- | --- | --- | | Monthly payment | about $15,030 | about $11,410 | about $10,290 | | Profitable taxpayer: present value of after-tax cost | about $446,000 | about $467,000 | about $421,000 | | No usable tax capacity: present value of pre-tax cost | about $567,000 | about $569,000 | about $514,000 |
What the table shows.
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For a profitable taxpayer, buying beats a lease priced at the same 7.5% rate by about $21,000 in present value. Most of that edge comes from the $157,500 year-one tax shield arriving early.
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If the lessor passes its tax benefit through as a 5.0% implicit rate, the lease wins even for a taxpayer, by about $25,000. That is why the implicit rate is the first number to request.
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For a shop with no taxable income, buying and a 7.5% lease come out almost equal, because nobody on the buyer's side captures the tax benefit. A lessor that can use the depreciation and shares it through a lower rate wins clearly, by about $53,000 in this example.
Residual sensitivity (profitable taxpayer, 7.5% lease). If the machine resells for 25% of cost, the buy case rises to about $490,000 and the lease wins. At 45%, the buy case falls to about $401,000. In this model, break-even resale is roughly 30% of cost at year five. If you expect a used-market price above about 30%, buy. If you expect less, or you are unsure, the FMV lease moves that risk to the lessor.
What one more hike does to the payment
The monthly payment on an amortizing loan is:
Payment = P x r / (1 - (1 + r)^-n), where P is the amount financed, r is the annual rate divided by 12, and n is the number of months.
At $750,000 over 60 months, 7.5% gives about $15,030 a month. At 7.75%, which is what the median dot's one more quarter point would imply if it passed straight through to your quote, the payment is about $15,120. That is roughly $90 a month, or about $5,300 over the life of the note. Compare that with a $157,500 federal tax shield, or with a 10-point swing in residual value worth tens of thousands of dollars. The Fed's next move is the smallest variable in this decision, and it only matters if you have not yet locked a fixed rate. Term yields can also move on their own, whatever the Fed does.
When the break-even flips toward leasing
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No taxable income to offset. Losses or NOL carryforwards make the bonus deduction worth little now. A lessor that can use it and prices it into a low rate gives you value you cannot capture yourself.
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The lessor passes the tax benefit through. Ask for the implicit rate. If it sits below your after-tax loan cost adjusted for the deduction you give up, the lease can win outright.
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High obsolescence or residual risk. A control platform you expect to replace, or a machine type with a thin used market, favors handing resale risk to the lessor.
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Short program or contract life. If the machine is tied to one customer program that may end in three years, an FMV lease with a return option limits your exposure.
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Covenant or cash constraints. A lease can preserve revolver capacity and avoid a large down payment, which matters when approvals are tightening, as ELFA's July data show.
When it flips toward buying
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You are a profitable taxpayer and can use the full year-one deduction.
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Long useful life and high utilization. A machining center you plan to run on multiple shifts for a decade keeps producing value after the loan is paid off.
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A strong used market. Rising order values in the USMTO data suggest shops are paying up for capable machines. If your model holds value above about 30% at year five, ownership captures that.
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The lender's rate is inside the lease's implicit rate. If the lessor will not disclose its implicit rate, treat that as a reason to buy.
The balance sheet is no longer a reason to lease
Under the current lease accounting standard, ASC 842, most leases longer than 12 months are recorded on the balance sheet as a right-of-use asset and a lease liability. Keeping debt off the balance sheet, a common reason to lease in the past, largely no longer applies. Check with your auditor how a specific lease will be presented and whether it affects your loan covenants.
A Q4 checklist for the finance team
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Get the implicit rate and residual assumption in writing from every lessor, and compare them with at least one bank quote and any captive promotion.
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Confirm the tax character of the lease. Is it a true lease (the lessor depreciates) or a $1-buyout or conditional sale (you depreciate)? Your tax adviser should sign off before you model it.
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Check the acquisition and binding-contract dates. Bonus eligibility depends on acquisition after Jan. 19, 2025, and a binding written contract signed before Jan. 20, 2025 disqualifies the property.
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Confirm the placed-in-service date. If you need the deduction this fiscal year, schedule delivery, installation and commissioning before year-end with some margin.
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Model two rate paths, flat and +25 basis points, using the payment formula above. Lock a fixed rate if the spread is acceptable.
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Test residual value at 25%, 35% and 45% and find your own break-even.
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Price the cost of waiting. If the new machine replaces one that keeps going down, delay has a cost too. The ManufacturingMag downtime cost calculator separates lost contribution margin from incremental recovery costs, so you can weigh a repair against a replacement and see what a month's delay is worth.
The bottom line
The Sept. 16 hike and the prospect of one more move add about $90 a month to a $750,000, five-year note. Whether your shop can use a $157,500 year-one deduction, and what the machine will be worth in five years, move the answer by tens of thousands of dollars. Start with tax capacity and residual risk. Then get the lessor's implicit rate in writing. The Fed's quarter point comes last.
Related reading
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Which Industrial AI Demos at IMTS Are Ready for a Plant Floor?
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The Strongest Machine-Tool Half in 28 Years — and Aerospace, Not Detroit, Is Signing the POs
Sources
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Federal Reserve Board: Implementation Note issued September 16, 2026
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Federal Reserve: Summary of Economic Projections, September 16, 2026
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IRS: Guidance on the additional first-year depreciation deduction (Notice 2026-11)
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Section179.org: 2026 Section 179 Deduction limits and phase-outs
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MonitorDaily: ELFA equipment finance industry confidence unchanged in July