Sobba points out that a finance lease or capital lease has a payment plan similar to that of an actual lease, but is treated as a conditional purchase agreement by the Internal Revenue Service. « The farmer is considered the owner of the machine, so it`s included in the farm`s depreciation plan, » she says. « Payments to the leasing company must be divided into interest and principal, with only the portion of the interest tax deductible. » This link from the state of Iowa is one of the best explanations that explains with simple worksheets and mathematical equations where you can see exactly how much new or used equipment will cost per hour or per acre. (« Breakdown », pun intended?). The average agricultural equipment lasts between 10 and 15 years, so you have to take into account the many variables. Learn more about when and how to replace AG devices here. So what exactly is a lease? This is a long-term contract between you and the owner of the machine. The contract allows you to use the machine for the specified period, as long as you make the specified payments. The contract usually lasts between three and five years, and people who go this route usually have the option of paying monthly, quarterly, annually or, in some cases, in advance. It should be noted that termination of the lease may result in a penalty.
Exact terms may vary from dealership to dealer, but this other Iowa state link will dig deeper into the full checklist to see if the rental is right for you. When buying farm machinery for your farm, there are many factors to consider. You need to spend time evaluating the value of the machine you want to buy to see if it will really be profitable. If you think this is the case, you need to compare all the machines and brands with each other. This can be an extensive process if they take into account the wide variety of agricultural machines and brands available today. However, before you even start considering all this, you must first decide whether to rent the machine or buy it directly. A rental agreement guarantees the use of a machine for a short period of time. Fees are usually charged per hectare, hour, day, week, month or season, with a minimum rate, even if the actual usage is lower than that stated in the contract.
Ownership is by far the most popular method of gaining long-term control over services based on agricultural machinery. By owning a machine, you control its use and the quality of its performance. You provide the work to operate it, and you take responsibility for repairs and maintenance, liquidation and obsolescence. However, this requires some organization if it is done very frequently, and the parties involved must be compatible. Which farm will come first? Who runs the machine? Who pays the repair costs if the machine breaks down and someone other than the owner uses it? How many working hours correspond to one hour of machine time? Agriculture and the agricultural sector are an essential part of the economy. Meanwhile, there is a wide range of new agricultural machinery and equipment that could help farmers work more efficiently. If you want to invest in new assets but don`t have enough capital to buy them directly, financing agricultural assets can be helpful. Long-term rental of agricultural machinery is becoming increasingly popular, although it has not grown as rapidly in agriculture as in some non-agricultural industries. Leases of 3 to 5 years are the most common. Like the property, renting gives you full control over the machine for the duration of the lease.
You are responsible for operating work, repair costs and other operating costs. At the end of the rental period, you have the option to hand over the machine for a new rental machine, purchase it or return it to the rental company. Custom leasing is a popular way to take control of agricultural machinery in the short term, especially for harvesting and applying fertilizers and pesticides. Personalized services can be available from a neighbor, a local merchant or a company specializing in custom agriculture and performing all kinds of operations in the field. Customers pay a certain amount via affordable monthly payments with VAT due on each rental. .