Tax Rules Impact Leasing or Buying Equipment

A DTN/Progressive Farmer article

Most segments of agriculture are experiencing financial stress. But that doesn't stop equipment from needing to be replaced. With the low commodity prices and tax law changes, many clients have asked about purchasing or leasing equipment. Because of high interest rates and the fear that they might go up, purchasing equipment on credit is becoming less attractive. But is leasing any better since the price of equipment increases every year? One thing is certain: There is much confusion.

There are two types of leases: operating and capital. An operating lease is what most people think of when they hear the term "lease." You make payments for a period and have the option to purchase the equipment at the end of the lease for its residual or fair market value. Once purchased, the lessee can depreciate the asset with basis equal to the amount they paid to acquire the asset at the end of the lease.

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