For farm and ranch equipment buyers, AgDirect experts believe one trend that is likely to continue is heightened interest in leasing to acquire use of equipment.
“Over the years leases have typically accounted for about 10 percent of our business,” said Jason Manker, an AgDirect territory manager. “In 2014 we saw that bump up to 15 percent, which is significant.”
Leases offer equipment buyers considerable flexibility, some potential tax benefits and help them maintain their working capital positions, Manker said. “The decision whether to lease or finance a purchase should always be made in consultation with your tax advisor,” he noted.
One other plus is the current interest rate environment, Manker added.
“Interest rates currently are very near historic lows,” he said. “No one knows how long it will be before they start going up, but they continue to be very attractive now.”
Consider a Purchase Leaseback
Another AgDirect territory manager, Chad Goldsmith, said that one tool available to reduce farmers’ or ranchers’ tax bill is a “purchase leaseback.”
“A purchase leaseback (PLB) is an option for a buyer to do a lease on new or used equipment they acquired with cash or a loan during the current calendar year,” Goldsmith explained. “AgDirect will write a lease on the asset for the full equipment value and will reimburse the cash to the customer or pay off the customer’s loan and apply the ‘equity’ as the first lease payment.”
For the farmer, using a PLB will help maximize write-offs for tax purposes and replenish working capital levels, Goldsmith said. It also sets a consistent annual write-off over the term of the lease, and can help increase cash reserves and preserve available Section 179 deductions.
“PLBs are only for assets acquired during the current calendar year, require original invoices and proof of payment, and they aren’t available in South Dakota or Washington because of those states’ sales tax rules. Other states also have different regulations, so check with the AgDirect territory manager for your state for details,” Goldsmith added. “But as true tax leases, PLBs are a great option for equipment buyers looking to reduce their taxable income and build up their cash reserves.”