Agricultural Financing Equipment

The scope of operating a commercial or residential farm typically means land, labor, machinery, and more. Therefore, the decision to invest in agricultural equipment often requires a substantial amount of capital. Quite often these equipment purchases also contain other decision-making criteria so working with a knowledgeable team within the Agricultural Field, that has the right programs can be the key to obtaining the results you need.

You deserve a finance partner that is committed to understanding the agricultural sector. We don’t know it all but we do however start from a deep knowledge base and moreover are always committed to learning more about this important industry.

Types of Leases
Operating Lease — A fixed payment is made over the course of several years. At the end of the contract, the machine can be returned or can be purchased by the lessee for a fair market value.

Financial Lease ($1.00 buyout lease, EFA: Equipment Finance Agreement)– In a financial lease, the lender considers the operator to be the machine owner. This way the owner is able to take advantage of depreciation deductions and will also own the equipment at the end of the lease. The final buyout of the machine is fixed, as opposed to an operating lease.

Deductions
The IRS allows deductions on loan interest and payments on operating leases. But a key in considering the purchasing or financing agricultural equipment is depreciation expenses.

Depreciation Deductions
For equipment you own for over one year, you are able to deduct a portion of the total costs. The IRS allows buyers to recover the cost of equipment purchased due to wear and tear, deterioration or obsolescence. This means owning farm equipment has tax advantages for you. We understand how to navigate these purchases and can assist in a plan to maximize your advantages.

Section 179
Agricultural equipment also qualifies for Section 179 deductions. By leasing equipment, you are able to deduct the value of that equipment. You are able to deduct up to the full amount that fiscal tax year, no matter how much you’ve paid.

Leasing Versus Buying Farm Equipment
No matter how you slice it, you’re going to have to spend a good deal of money on farm equipment. Due to high costs, financing is the primary option to obtain what you need. But the question remains, do you buy or lease?

Leasing
Pros
— The entire lease payment is deductible, as is a lease deposit and operating costs.
— Less liability on your balance sheet. This can be either a positive or negative depending whether your long-term goals involve valuation.
— This gives you a quick option of starting your business, as it’s usually less complicated and quicker to attain machinery.

Be sure to give us a call at Funding Well Capital when you start planning your agricultural project. We will work hard to design you a plan best suited for you.

Sources:
— The University of Nebraska-Lincoln
— Iowa State University
— Kansas State University

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