Schumer: federal tax code changes could put more money in farmer's pockets; help buy up-to-date equipment.
Standing at Jim and Nate Henderson Farms in Penn Yan Tuesday morning, U.S. Sen. Charles E. Schumer said the current federal tax code prevents farmers from investing in new farm equipment, and he’s proposing tax law changes that will help.
“Coming here on a beautiful fall day, you are reminded of the hard work farmers do,” said Schumer, opening his remarks.
Schumer said he’s proposing changes that will make financing the purchase of big equipment to be included in the tax extender bill that should be on Congress’s agenda in December. This bill, the Agriculture Equipment and Machinery Depreciation Act, is supported by the American Farm Bureau and the National Farmers Union.
“Farmers throughout Yates County and the Rochester-Finger Lakes Region need greater certainty and better incentives that allow them to purchase the critical equipment needed to help their farms operate and grow. Allowing them to take advantage of the depreciation tax deductions in a shorter time frame would be good for business. Having more cash on hand, and sooner, would be a boon for farmers across Yates County and the entire regional economy,” said Schumer. He explained that farmers finance the purchase of most equipment over five years, but must stretch the depreciation of that equipment out over seven years for income tax purposes. Under his proposal, farmers would get to deduct the depreciation over five years, putting more money in their pockets.
Jill Henderson, co-owner of Henderson Farms said, “Right now we know we will soon have to replace our combine, a cost of approximately $550,000. But with commodity crop prices for our corn, wheat, and soy now so low we have to delay that purchase. So for farmers like us, having a quicker five year depreciation that is permanent would allow us certainty and free up the cash-flow needed to put equipment purchases like this within reach.”
With a fleet of large farm implements behind him, Schumer talked about the need for modern equipment fitted with safety features and technology that increases efficiency and employs emission controls.
Skip Jensen, New York Farm Bureau Field Representative said, “We appreciate Senator Schumer’s support to permanently restore this five-year depreciation period so that farmers can better recover the costs of new equipment and better afford to purchase the machinery they need when they need it.”
With the cost of some tractors and harvesters ranging between $200,000 and $600,000, small farmers often choose to push equipment for more years.
The general wear and tear of the machinery used on farms results in the depreciation of the value of this machinery, until it is eventually obsolete. This depreciation on equipment is a cost incurred by farmers over time that the tax code helps buffer through a depreciation deduction. This deduction allows farmers to recover the cost of the depreciation of an asset (farm equipment) over time through lower taxes. The length of time this deduction is taken is known as the recovery period.
However, despite this buffer under the current federal tax code, Schumer said farmers are less likely to invest in new farm equipment because the recovery period for the deduction does not align with the useful life of equipment or the average financing schedule of machinery.
For example, if a farmer purchases a tractor for $100,000 with a salvage value of $30,000 after its useful life, its depreciation cost is $70,000. Currently, the farmer is only able to receive a deduction for this $70,000 depreciation cost over seven years, resulting in a $10,000 per year deduction for seven years. Schumer’s bill would allow farmers to receive the depreciation deduction over five years, allowing farmers to deduct $14,000 per year for five years. This $14,000 deduction can be used to pay off a farmer’s loans on the tractor, or can be used for additional investments in the farm. Either way, Schumer notes, having more cash on hand, and sooner, is a boon for farmers across Upstate New York.
Schumer said Hendersons’ Farm covers roughly 2,100 acres in Yates County. They are primarily commodity crop farmers, growing soy, corn, and wheat along with clover seed, alfalfa seed, and some vegetables. The Hendersons told Schumer, a few years ago when market prices were higher for their crops, they were able to afford to buy four large 4-wheel drive tractors. However, market shifts have changed the story and made it much more difficult for them to purchase expensive machinery this year. Specifically, Henderson Farms knows it is on borrowed time when it comes to the older of their two large combines. One combine is now 7 years old and is the workhorse for the farm; it is used to harvest all of their commodity crops. But on a farm as large as theirs, this equipment has experienced a lot of wear and tear. While the farm’s owners would prefer to replace it, the market price for commodities has unfortunately dropped this year, meaning they have less cash on hand for investments like replacing farm equipment. A new combine is expected to cost approximately $550,000. Instead of replacing the combine, Henderson Farms is forced to make stop-gap repairs to keep it running as long as possible.
Schumer said a change must be made to incentivize farmers to purchase equipment while restructuring the tax code to allow greater certainty for farmers looking to make investments. That’s why Schumer said this legislation would provide farmers with more financial certainty as they prepare to make expensive equipment purchases and give them more cash on hand as they prepare to purchase equipment. Schumer said both Seneca Lake and Keuka Lake are located in Yates County and, as a result, the area has many farm wineries. This bill would benefit them in particular, as grape harvesters are very expensive and farmers would be able to benefit from purchasing new equipment and investing in their farms earlier. Finally, it would bring greater business opportunities to places that sell farm equipment and machinery throughout Upstate.