TRAC leases for trucks and trailers, explained

A TRAC lease is a lease for over-the-road vehicles, such as trucks and trailers, that includes a terminal rental adjustment clause. It is common in fleet financing because it combines a lease’s lower payment with a predictable end of term.

How it works

You and the lessor agree on a residual value at the start, for example 20% of the truck’s cost. Payments cover the difference between the cost and that residual, plus the financing charge. At the end of the term the vehicle is sold or you buy it at the residual. If it sells for more than the residual, you receive the surplus; if less, you pay the shortfall.

A worked example

A fleet leases a $160,000 tractor for 60 months with a 20% residual of $32,000. The payments amortize $128,000 plus the financing charge. At the end of the lease the truck sells for $40,000, so the fleet receives the $8,000 surplus. Had it sold for $27,000, the fleet would have paid the $5,000 shortfall. Either way, the fleet knew its end-of-term position from the start.

Why fleets use it

• Lower payments than a loan, because part of the cost sits in the residual.
• Control over the end-of-term outcome, unlike a fair-market-value lease.
• Treated as a true lease for federal tax purposes when it meets the TRAC rules, so the lessor takes depreciation and you deduct the lease payments.
• Flexibility to pick a residual that fits your replacement cycle.

Trade-offs

You carry the residual risk. If used-truck prices fall, you owe the difference at the end. A higher residual lowers the payment but raises that risk. TRAC leases are available only for qualifying motor vehicles and trailers used in a trade or business, and the lessee generally must certify business use.

TRAC vs. EFA

With an equipment finance agreement you own the truck from day one, can take Section 179 or bonus depreciation, and have no residual. With a TRAC lease you get a lower payment and lease-payment deductions instead. With 100% bonus depreciation available in 2026, many owners compare the two carefully.

• Keep trucks for their full life and want the first-year deduction: an EFA often fits.
• Replace trucks on a set cycle and want lower payments: a TRAC lease often fits.
• Unsure: ask your lender to quote both on the same truck and compare total cost with your tax advisor.

This article is general information, not tax advice.