Eqipment loans

Animal · Jan 18, 2012

Is the interest tax deductable on these loans?

IaGary · Jan 18, 2012

Yes 100% if farming is your business and not a hobby. And the equipment has to be for the business.

Gary

donjr · Jan 18, 2012

And don't forget to expense or depreciate the equipment, either!

Goose · Jan 18, 2012

You have to be careful with depreciation, though. Depends on purchase price, selling price when you sell, and how long you keep the equipment.

When I was farming in the mid '80's, there was a time when a lot of farmers were going under, and you could go to an auction and buy machinery for 50 cents on the dollar, or less. I bought an 856 Farmall, put it on a 10 year depreciation schedule, used it 9 years, and quit farming.

By the time I quit farming prices had gone back up and I sold the 856 for within $200 of the price I'd paid for it 9 years earlier. In getting my taxes squared away, guess what? The IRS wanted their depreciation back. It's called "recapture". In effect, I bought the tractor all over again, as I had to take a loan to repay the IRS the depreciation.

If I hadn't needed the money at the time, I could have kept the tractor and it wouldn't have cost me anything.

donjr · Jan 19, 2012

It's true that the tax codes can trip you up. But in planning out for a few years, depreciation schedules can save a bundle of money on taxes, and make new or used equipment a whole lot easier on the pocket. We're not in business for the short haul, so I try to use them when I can. Machinery costs too much and this eases the bite over a long time.

Eqipment loans

Animal

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IaGary

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donjr

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Goose

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donjr

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