Synthetic Lease Law and Legal Definition

A synthetic lease is a financing structure by which a company structures the ownership of an asset. It is treated as a lease for accounting purposes and as a loan for tax purposes. The structure is used by corporations that are seeking off-balance sheet reporting of their asset based financing, and who can efficiently use the tax benefits of owning the financed asset. A synthetic lease allows a corporation to get dual tax benefits of depreciating the real estate and deducting interest payments without the debt or asset appearing on the corporation's financial statement.