Now may be the right time to consider upgrading your ag equipment. When you find the right piece of machinery, you’ll need to decide how you will pay for it. Aside from cash, you have two options.
BORROW OR LEASE
Your cash position and tax objectives fluctuate from year to year. It’s important to understand your options and consult with your banker and tax advisor to determine the best option for you, at the time of purchase. What makes sense this year may not in the future.
LEASE BASICS
An ag equipment tax lease is structured to provide the leasing company with ownership and all depreciation benefits. In return, your annual lease payments are typically fully-deductible. At the end of the lease term, you have the option to buyout the lease and own the equipment.
LEASE ADVANTAGES
- With 100% financing available, leases typically require less money up front.
- Leases are available on both new and used ag equipment.
- You’re paying for the use of the equipment, with the option to purchase it at the end of the lease term.
- Lease payments are typically fully-deductible.
- Most Alliance Bank leases are structured to be short term at a fixed rate. This generally equates to a higher payment than a traditional loan, but a quicker write-off.
The primary disadvantage of a lease is the equipment is not listed as an asset on your financial statement. You are not able to depreciate the equipment. Some farmers believe leasing is the most expensive form of financing, but the days of large fees and penalties are behind us. A relationship-based lease with your banker can be flexible to your needs and streamlines your equipment financing through one institution.
LOAN ADVANTAGES
- You can depreciate the ag equipment as an asset on your financial statement.
- Longer loan terms reduce your payment amount.
Loans do require an upfront down payment, and you are typically only able to deduct the interest portion of your payment each year.
MAKING THE RIGHT DECISION
To determine the best option for your next equipment purchase, you must ask yourself a variety of questions.
- How long will you need the equipment?
- How much cash do you have available?
- What are your tax objectives?
- What payment can you afford?
Talk with your local banker today to learn more about the differences between a lease and loan. They will be able to share our current rates, terms and payment amounts for each option. It is then up to you and your tax advisor to decide which option is the best for you. If you are ready to apply for a lease, use our convenient online lease application.
Learn more about all of our ag loan options at MyAllianceBank.com.
