Eastern Iowa Farmer Spring 2017

More documents

Recommendations

Info

Your Ag lending speciAlists Maquoketa State Bank’s experienced ag lending professionals are here to help you succeed. Whatever your ambitions, we’ll be right there beside you. Give us a call or pay us a visit – it will be the best financial decision you’ve ever made. Pictured left to right: Laura Farrell, Joel Lasack, Jan Kahler and Brian Nabb. 203 North Main • 112 McKinsey Drive Maquoketa, Iowa 563-652-2491 3 North Elliot Preston, Iowa 563-689-3535 Each depositor insured to $250,000 16 West Benton Street Andrew, Iowa 563-672-3575 FEDERAL DEPOSIT INSURANCE CORPORATION Maquoketa State Bank is an FSA preferred Lender www.maquoketasb.bank
About CALT: n The Center for Agricultural Law and Taxation (CALT) at Iowa State University was created in 2006. It provides timely, critically objective information to producers, professionals and agribusinesses concerning the application of important developments in agricultural law and taxation (federal and state legal opinions of relevance, as well as critical legislative developments) and is a primary source of professional educational training in agricultural law and taxation. Contact CALT: Iowa State University 2321 N. Loop, Suite 200 Ames, IA 50010 Phone: (515) 294-5217 Fax: (515) 294-0700 www.calt.iastate.edu By Kristine A. Tidgren Staff Attorney Center for Agricultural Law & Taxation Iowa State University eastern Iowa farmer Farm income might be down, but the need for farm equipment continues. Options for farmers looking to buy equipment have expanded in light of changing times. Some of those options, while offering attractive benefits to some producers, could lead to serious tax liability for others. Because lease or purchase contracts can be plagued with pitfalls, it is crucial that producers understand the tax implications of any agreement before they sign it. It is important to begin with the principle that a “lease” is not always a “lease” in the eyes of the IRS. What matters in interpreting a contract for the acquisition of equipment is not the name given to the transaction by the dealer, but the economic realities of that transaction. If a “lease” doesn’t act like a “lease,” the IRS won’t treat it as one for tax purposes. True equipment leases are often referred to as “operating leases.” An operating lease is one where the farmer is paying for the use of the equipment for a term, nothing more and nothing less. An operating lease is not a rent-to-own agreement or a gateway to ownership. If the producer does wish to buy the equipment at the end of the lease-term, the purchase price will be essentially the fair market value of the equipment at the time of the purchase. If equipment is leased pursuant to a true operating lease, the farmer can deduct the rental payments from income as ordinary and necessary business expenses. Contrast that with a “capital lease,” which is truly a conditional sales contract or a financed purchase. Although it might be called a lease, a capital lease is really a purchase over time. The IRS has stated that if any of the following factors are true about an agreement to acquire equipment, the agreement is a conditional sales contract, not a lease: Is it a lease or a purchase? With farm equipment, the difference really matters n The agreement designates part of each payment toward an equity interest that the farmer will receive in the property. n The farmer gets title to the property after paying a stated amount of “rental” payments required under the agreement. n The amount the farmer must pay to use the property for a short time is an inordinately large part of the amount he or she would pay to get title to the property. n The farmer pays much more than the current fair rental value for the property. n The farmer has an option to buy the property at a nominal price compared to the value of the property when that option is exercised. n The farmer has an option to buy the property for a small amount compared to the total amount paid under the agreement. n The agreement designates some part of the payments as interest, or parts of the payments are easy to recognize as interest. For tax purposes, a capital lease is treated as a purchase. Payments (except for interest payments) are not deductible. Instead, the cost of the equipment is capitalized and depreciated over time. In many cases, the purchase might qualify for the enhanced IRC Section 179 deduction and/ or bonus depreciation. These transactions can get especially complicated when a farmer trades in equipment as a down payment on a capital lease or to cover a portion or all of the required lease payments under an operating lease. Here, properly distinguishing between an operating lease and a capital lease is crucial to avoid an unexpected tax bill. Capital Lease Example Often, if a farmer trades in a piece of used equipment, that equipment will have been fully depreciated. In other words, it will have a tax basis of zero. If the lease is a capital lease, the farmer may take advantage of IRC Section 1031 like-kind exchange rules to avoid recognizing spring 2017 | Eastern Iowa Farmer 37
Page 1 and 2: The Eastern Iowa Farmer Spring 2017
Page 3 and 4: Expert Channel Seedsmen in Your Are
Page 5 and 6: If you want the best... • Commerc
Page 7 and 8: 800.772.2721 | krugerseed.com f Sel
Page 9 and 10: Story Index managing your soil 48 Y
Page 11 and 12: When it comes to planting season, t
Page 13 and 14: Life Lessons Learning by Example Gr
Page 15 and 16: Life Lessons eastern iowa farmer ph
Page 17 and 18: eastern iowa farmer photo / contrib
Page 19 and 20: Life Lessons that it cleans better
Page 25 and 26: Life Lessons for Brodi Grandpa inst
Page 27 and 28: Life Lessons Ray gifting her Lucy,
Page 29 and 30: Life Lessons Scrapers were used dur
Page 33 and 34: Life Lessons K9 Comfort owners, Jas
Page 35: ROOM FOR ALL THIS? Farm wife, Sue M
Page 39 and 40: ecapture income from that trade. Sa
Page 41 and 42: From Planting to Harvest... • Bec
Page 43 and 44: Barbara Reed, a loan analyst with t
Page 45 and 46: The Borrenpohls, Clayton, William,
Page 47 and 48: You have a BIG job. We have BIG TRU
Page 49 and 50: managing your soil ing your oil For
Page 51 and 52: managing your soil way they farmed
Page 53 and 54: managing your soil eastern iowa far
Page 55 and 56: managing your soil rotate the cattl
Page 57 and 58: managing your soil Fifth-generation
Page 59 and 60: managing your soil Michelle Turner
Page 63 and 64: managing your soil Birds of all var
Page 65 and 66: managing your soil pursues his pass
Page 69 and 70: managing your soil Gerlach said.
Page 71 and 72: TO OUR CUSTOMERS WHO BOUGHT SEED FO
Page 75 and 76: MICHAEL DELANEY 563-543-1376 CREATE
Page 77 and 78: managing your soil Matt Vickers (ri
Page 79 and 80: managing your soil talking to other
Page 83 and 84: managing your soil for healthy crop
Page 85 and 86: managing your soil the “average
Page 87 and 88:
managing your soil erosion. “If a
Page 89 and 90:
checkoff Continued from page 39 tow
Page 91 and 92:
particular to Iowa,” he said, add
Page 93 and 94:
It doesn’t matter how it happened
Page 95 and 96:
that found many solutions in the pa
Page 97 and 98:
an app for that Equine Journal Equi
Page 99 and 100:
PEOPLE ARE STILL IMPORTANT… The s
Page 101 and 102:
Ag Bytes families who have owned th
Page 103 and 104:
Ag Bytes NRCS offers programs to as
Page 105 and 106:
homestyle desserts Recipe for makin
Page 107 and 108:
homestyle desserts enjoy the proces
Page 109 and 110:
you Farm. we paint. Steel Roofs •
Page 111 and 112:
homestyle desserts Transfer to 8-in
Page 113 and 114:
Customized plans for farmers needs
Page 115 and 116:
homestyle desserts Strawberry Short
Page 117 and 118:
It is Your Livelihood. Make Sure Yo
Page 119 and 120:
Farmers — protecting — Farmers
Page 121 and 122:
Lori Schnoor, Jackson County Conser
Page 123 and 124:
eastern iowa farmer photo / Trevis
Page 125 and 126:
Dozens of gulls follow Mark Peterse
Page 127 and 128:
We got it all We do it all Tires! l
Page 129 and 130:
Mike and Kale Schmidt move pallets
Page 131 and 132:
Peoples Company is an award-winning
show all

Eastern Iowa Farmer Spring 2017

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?