Leasing Farm Buildings as a Tax Strategy

red farm building surrounded by a harvested field

The leasing of farm equipment is a familiar and proven financing tool. Newer to agriculture is the leasing of farm buildings.

Whether customers are adding machine sheds, grain bins, commercial buildings, or livestock facilities to their operations, more producers are choosing leases, primarily as a tax management strategy.

Farm Credit Services of America (FCSAmerica) offers leases in partnership with Farm Credit Leasing. Visit your local FCSAmerica office to learn more about leasing and lease options.

To determine if leasing is the right choice for your operation, producers need to consult with their tax advisor. Leasing offers a number of benefits. Among them:

  • On a properly structured True Tax Lease, lease payments can be 100% tax deductible as business expenses. (If producers choose to own a structure, they generally are limited to depreciation and a deduction for interest expenses.)
  • Producers can structure leases to fit their specific tax strategy. Often an advantage with a farm building lease allows the producer to accelerate their write-off period.
  • Working capital is preserved by eliminating major capital outlays.
  • The value remaining on a building at the end of a lease can be bought by the producer, or ownership can be transferred to the next generation as part of a producer’s farm transition plan limiting tax implications.  Again, we recommend consulting with a tax professional.
  • Low, long-term and fixed rates for producers.

We often use the example of a $300,000 building to demonstrate the potential benefit of a leasing program. The example below provides a purchase vs. lease comparison, illustrating different ways to expense a farm building. Leasing allows a balanced tax management strategy as compared to a traditional depreciation or bonus depreciation.

Examples are for informational purposes only, please consult with your tax advisor.

Year

Total Depreciation/Interest

Lease Payment

Year 1

$3,750.00

$20,000.00

Year 2

$12,153.22

$14,337.90

Year 3

$10,906.22

$14,337.90

Year 4

$9,658.98

$14,337.90

Year 5

$8,401.01

$14.337.90

Year 6

$7,130.06

$14.337.90

Year 7

$5,838.13

$14.337.90

Total Deductions

$57,838.22

$106,027.40



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