RANCHING Business
brand. Initially, he paid $22,000 per tractor for them. When he sold them, after using them for 8 years, he received $19,500 apiece.
What are the advantages of leasing? Leasing allows a producer to acquire equipment
with a minimal initial expenditure. “While leased equipment may require a down pay-
ment and/or a deposit, these are generally less than the down payment required to purchase equipment,” Homeyer says. “In leasing, the biggest outlay of money generally comes at the end of the lease, if the producer chooses to purchase the equipment.” Leases are generally easier to obtain and have more
fl exible terms than loans for purchasing equipment, which can be a benefi t for those who are just starting out in the business or who have credit issues or need to negotiate a longer payment period to lower payments. In a true lease, the entire lease payment is deduct-
ible. A non-refundable lease deposit is also deductible for producers paying taxes on a cash basis, but the payments must be amortized over the life of the lease. Operating costs are also tax deductible. Leasing also takes care of the problem of obsoles-
cence because at the end of the lease period, a producer is free to lease new, state-of-the-art equipment.
What are the disadvantages of leasing? Leasing has 2 main disadvantages: overall cost and
lack of ownership. “When it comes to cost, leased equipment generally
costs more than purchased equipment,” Homeyer says. Using a computer system as an illustration, a 3-year lease on a computer worth $4,000 at a standard rate of $40/month per $1,000 will cost you a total of $5,760. If the producer had bought it outright, it would have cost only $4,000. Leasing does not allow producers to build up equity
in the equipment. “Leasing gives fl exibility, but it does not add assets to an operation’s portfolio that contribute to a larger net worth,” Homeyer says. Generally, leases cannot be cancelled without pen-
alty, so producers must continue to pay the lease fees even if they no longer need the equipment.
How much will the equipment be used? It’s imperative for producers to be honest with them- selves about how much the equipment will be used
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52 The Cattleman June 2013
MADE IN USA
thecattlemanmagazine.com
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