Every farmer and rancher should have leasing in their financial toolbox. From cash preservation to tax advantages of an accelerated write-off, leasing offers an ideal solution to help grow your farming operation in both the near and long term.
AgCountry Farm Credit Services partners with CoBank Farm Credit Leasing, one of the largest providers of lease financing in rural America, to supply you with the latest information and expertise on agricultural leasing. Through this partnership, we offer flexible lease payment structures on equipment, vehicles, packaging and processing lines, and all types of agricultural facilities, including machine sheds, grain storage, livestock and dairy buildings, greenhouses, and farm shops.
The partnership brings decades of experience in structuring leases for unique assets, like solar arrays and commercial buildings. Leasing unique assets provides tremendous tax advantages when properly structured. For instance, farmers may consider a solar array to save on their electric bill and could benefit from a lease where the tax credits are passed back in the form of a low or negative lease rate, making the total cost to own less than the acquisition cost. Similarly, with a properly structured commercial building lease, farmers can accelerate the write-off of a 39.5-year property in seven or ten years. Our extensive investment in developing knowledge and leasing options gives you the flexibility and advantages you need when deciding to lease.
Lease vs. Buy Considerations
Whether you’re looking to upgrade your equipment or expand your current operation, here are some key things to think about when considering whether to buy or lease your next agricultural asset:
Tax Advantages
Leasing a 20-year property, like a pole barn, allows the farmer to deduct 70-80% of the facility in five to seven years as a lease expense on their Schedule F, similar to land rent. Deducting lease payments provides a constant deduction over the life of the lease, rather than taking depreciation in a lump sum with limited depreciation deductions in future years.
By utilizing a lease, a farmer can know exactly what expenses to plan for over a longer period. As every farmer knows, it’s best to take the tax advantages when you have the opportunity.
Estate Planning
When planning to transition your farming operation to the next generation, leasing is a key tool to consider. With the uncertainty around potential changes in estate taxes and the corporate tax rate, there is no better time than now to consider leasing. Leasing allows farmers to seamlessly transfer leased assets to the next generation, keeping the assets out of the estate, and offering previously mentioned tax benefits. At the end of the lease, when the residual comes due, the next generation can purchase the assets for the residual amount, and ownership of the assets transfers directly from the leasing company to the next generation. This offers an incredible tax advantage for future generations.
Preserve Working Capital
Farmers or businesses may not have the cash on hand for a down payment on a loan, or may want to use the capital elsewhere. With a lease, farmers can preserve working capital and save money for other expenses. Leasing can provide 100% financing with no down payment required. Often, the only cash required upfront is the first lease payment, which is significantly less than a down payment on a loan. This helps save money while still obtaining the equipment or facility needed to grow their business.
For farm businesses, the value of equipment, bins, or buildings lies in using it. With AgCountry Farm Credit Services and CoBank Farm Credit Leasing, you can work with any manufacturer, negotiate the best price, and we can provide the financing needed to help run your business effectively and profitably.
Learn how to take advantage of leasing benefits by reaching out to your local AgCountry branch.
This article originally appeared in AgCountry's 2023 Plant magazine.
