During conversations at the National Farm Machinery Show last week we picked up on what may be an interesting trend.
When laws change there's always the discussion of the "unintended consequences" that arise. And they can sometimes be good, or at least create some kind of surprise. Last week in talking with finance firms and equipment companies we learned that the reset of the Section 179 deduction down to $25,000 with its expiration at the end of 2013 has at least a few of our readers considering a different approach to equipment acquisition - leasing.
During a stop at the Farm Credit Mid-America exhibit, I talked with Andrew Melton about a range of topics including Section 179. He notes that leasing is getting more popular. "From a tax perspective it's a 100% deduction of the lease costs," he notes. That's similar to the tax benefit of that original 179 deduction.
Visits with a few manufacturers brought similar responses - farmers are turning to leasing as an alternative tool for acquiring equipment. Over the years, top-level growers have found the value of using newer machinery with its higher productivity. And with technology changing regularly, having the latest machinery on hand might make a difference.
Melton notes that the leasing is part of the farm conversation his folks have when they visit to talk about financing for the new crop year. Through Farm Credit Services of America many Farm Credit System associations are working with AgDirect too. This equipment financing business offers new equipment financing, leasing and refinancing of ag equipment.
Other players in the market - Wells Fargo and Agri-Credit - are serving the farm equipment market as well. And leasing is part of the deal there.
The key on leasing is the residual - what you would owe and the end of the lease if you decided to purchase the machine. Sometimes it makes sense to pay the residual, or you can simply walk away and lease a new machine.
Melton adds that this year farmers are sharpening their pencils in light of commodity prices that have slid from historic highs. "They're shopping around for financing and they need to look at ways to manage costs," he says.
His association, which serves Indiana, Ohio, Kentucky and Tennessee, is working closely with producers this year to manage the financial side of the farm business as the cost/price picture changes. Leasing appears to be one financial management tool that is gaining interest.
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