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Would You Consider the Lease Option for New Farm Equipment?

Would You Consider the Lease Option for New Farm Equipment?

Farm business equipment needs change year to year; leasing is one option.

Reviewing your equipment inventory? Thinking about upgrading or adding equipment but not sure how to best financially handle it? Have you considered leasing?

Farmers hesitant to purchase a new tractor, combine or self-propelled sprayer but needing to upgrade their machinery might consider leasing as an option.

Today's lease options allow producer to benefit from the privileges of equipment ownership, deduct the equipment lease as a business expense on their federal income taxes and generate higher cash flow.

As a bonus, when the lease period ends, farmers may trade the machinery in for new equipment or purchase the leased machinery outright.

Leasing equipment: Looking at updating or adding to your equipment line? Leasing is one option to consider for your farm business. (Apache photo)

The two most common leases are operating and finance. The operating lease, also known as a "true lease," involves a series of regular payments that can be tax-deducted as ordinary expenses and provides several options for renewal or equipment purchase when the lease ends.

With the finance lease, sometimes called a "conditional sales lease," the lessee is considered the machinery owner and can place the equipment on a depreciation schedule. The finance lease also allows farmers a "purchase upon termination" option, whereby they buy the equipment when the lease expires for a predetermined amount.

Related: Looking Back, and Ahead at Ag Equipment

Self-propelled sprayers are becoming a hot commodity for farmers these days. They allow the producer to cut costs on custom application as well as have control over the timing of application.

"There's a lot of flexibility built into leases," said Jake Follrod, an Equipment Technologies regional director serving Apache Dealers in nine eastern and southern states and Ontario, Canada. "When I talk to a grower I help them think about the hours they'll use the sprayer. From that I can tell them how much it's going to cost them per hour to lease the machine."

Tax benefits are another reason farmers may choose to lease. The Internal Revenue Service permits farmers to deduct equipment leases on their federal income taxes. Under Section 179 of the U.S. tax code farmers can deduct up to $25,000 on equipment purchases or leases exceeding $200,000 during the 2014 tax year.

The opinions of Jennifer Campbell are not necessarily those of Indiana Prairie Farmer or the Penton Farm Progress Group.

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