purchasing a secondhand tractor

realchewytiger

Thinking of buying a second hand tractor for 23 k is it better to spend my own cash on it or take out a loan from a bank credit union ect for farm accounts whats the best way to go about it .

bonaparte2

Lease it used to be most tax efficient afaik

Greengrass1

bonaparte2 wrote: »

Lease it used to be most tax efficient afaik

Only get a lease if your buying of dealer and its new.
Shop around. Ask who ever your banking with about a loan and see what interest rate they offer.
Doubt credit union do loans of 20k plus?

frazzledhome

realchewytiger wrote: »

Thinking of buying a second hand tractor for 23 k is it better to spend my own cash on it or take out a loan from a bank credit union ect for farm accounts whats the best way to go about it .

Do not spend your own money on something that's going to depreciate

mahoney_j

frazzledhome wrote: »

Do not spend your own money on something that's going to depreciate

+1

jimmy G M

frazzledhome wrote: »

Do not spend your own money on something that's going to depreciate

Interesting, what's your rationale for that?

mf240

frazzledhome wrote: »

Do not spend your own money on something that's going to depreciate

If he had the money whats the point in borrowing and paying 4/5% interest on the loan while his own money sits at less than 1%.

To answer the ops question. The tax allowance on the tractor (depriciation) will be the same regarles of how you finance it.

5live

mf240 wrote: »

If he had the money whats the point in borrowing and paying 4/5% interest on the loan while his own money sits at less than 1%.

To answer the ops question. The tax allowance on the tractor (depriciation) will be the same regarles of how you finance it.

You spend 23k on the tractor but only 15%(?), 3.5k of that is allowable as depreciation so you're going to be taxed at your marginal rate, possibly 52% on the balance of 19.5k.

Its a big hit of 10k tax in one year, if i'm doing the sums right?

mf240

5live wrote: »

You spend 23k on the tractor but only 15%(?), 3.5k of that is allowable as depreciation so you're going to be taxed at your marginal rate, possibly 52% on the balance of 19.5k.

Its a big hit of 10k tax in one year, if i'm doing the sums right?

If the op has the 23k in savings. It will have been subject to tax when it was earned. Op wont have to pay tax on it a second time if he uses it to buy tractor.

You aee right i think . 15% for six years and ten %year 7. This is the capital allowance which will be unaffected by payment method.

jimmy G M

5live wrote: »

You spend 23k on the tractor but only 15%(?), 3.5k of that is allowable as depreciation so you're going to be taxed at your marginal rate, possibly 52% on the balance of 19.5k.

Its a big hit of 10k tax in one year, if i'm doing the sums right?

Depends on whether he has the cash already in his savings account - ie already out of the business and tax paid on it. If he has to sell €23k in extra stock to pay for the machine, then you are correct. In that case he would be better off borrowing.

Deepsouthwest

Has this gone off track a small bit? Surely the op isn't thinking of buying this tractor with his confirmation money, having absolutely no effect on his running costs to be put against tax. I think the question is should he pay for it out of cash flow(as he has the 23k on hand) or does he pay over 5/6 yrs on hire purchase/lease? I always thought to easiest way to pay for anything was with ur own money, no interest payments etc. but I'm willing to be told I'm wrong if I am!

5live

If the poster has the cash in hand already, tax paid, I would be reluctant to advise him to spend it unless he really needs to.

If he is using money from the current years cash flow then the tax implications above come into play.

A bank loan over 5-7 years or a lease for 5 years which are allowable as an expense against tax would be my preference, depending on what the repayments and interest rate he is quoted are.

In my opinion, after tax cash is best kept away from the farm as far as possible. If the OP has that level of cash taken out already then a good rate and repayment schedule should be fairly easy to negotiate and fairly easy to repay, given a large cash sum is available already.

Deepsouthwest

5live wrote: »

If the poster has the cash in hand already, tax paid, I would be reluctant to advise him to spend it unless he really needs to.

If he is using money from the current years cash flow then the tax implications above come into play.

A bank loan over 5-7 years or a lease for 5 years which are allowable as an expense against tax would be my preference, depending on what the repayments and interest rate he is quoted are.

In my opinion, after tax cash is best kept away from the farm as far as possible. If the OP has that level of cash taken out already then a good rate and repayment schedule should be fairly easy to negotiate and fairly easy to repay, given a large cash sum is available already.

Surely this cannot be the case? Could anyone be so foolish as to spend their own after tax cash on anything for the farm, surely not.

The Letheram

Greengrass1 wrote: »

Only get a lease if your buying of dealer and its new.
Shop around. Ask who ever your banking with about a loan and see what interest rate they offer.
Doubt credit union do loans of 20k plus?

Have borrowed well in excess of €20k from the credit union in the past. Not just during the boom either. As recently as 18 months ago. Over 1% better than the bank at the time too.

5live

Deepsouthwest wrote: »

Surely this cannot be the case? Could anyone be so foolish as to spend their own after tax cash on anything for the farm, surely not.

Don't know, DSW. It seems mad to me to be reinvesting money back into the farm unless it is badly needed.

Mf240, is that what you are saying, buy with cash and not pay interest on it?

mahoney_j

Pump the 23 k into tractor and drive it out of dealers yard and its deprecating straight away .23 k gone ou t of account for good and no safety net for say a year like next in dairying,Shiny tractor in yard but frig all Money in current account.make much more sense to buy on hp or loan over say 5 years for cash flow and tax

Brown Podzol

You are going to have to pay for it one way or another, unless you can get someone else to buy it for you, and then it will be subject to gift tax. Two elements to the cost. Interest ,if you borrow, and capital. Both allowable. The interest you pay yearly on the loan,is allowable in that year. The capital is depreciated over 7 years, 6x15 and 1x10, whether you use your own money or not.

mf240

mahoney_j wrote: »

Pump the 23 k into tractor and drive it out of dealers yard and its deprecating straight away .23 k gone ou t of account for good and no safety net for say a year like next in dairying,Shiny tractor in yard but frig all Money in current account.make much more sense to buy on hp or loan over say 5 years for cash flow and tax

Tractor is going to depriciate whatever way you pay for it.

IF you have the money why pay interest.

It will not make any difference to your taxable income what method of payment you make.

Yes interest is tax deductable but your giving the bank a euro in order to save 41 cent from noonan.


All that said only buy a tractor or machine if you need it. Saving tax is not a good enough reason to buy.

mahoney_j

mf240 wrote: »

Tractor is going to depriciate whatever way you pay for it.

IF you have the money why pay interest.

It will not make any difference to your taxable income what method of payment you make.

Yes interest is tax deductable but your giving the bank a euro in order to save 41 cent from noonan.


All that said only buy a tractor or machine if you need it. Saving tax is not a good enough reason to buy.

Yes but what happens if the sh1t hits the fan after you empty your current account to pay for tractor .you need a rainy day fund and as someone said earlier never spend money from cash flow on something that depreciates straight away.

frazzledhome

jimmy G M wrote: »

Interesting, what's your rationale for that?

Cash flow. Need to keep cash in reserve. No point hitting a bump in the road and having no helmet

mf240

mahoney_j wrote: »

Yes but what happens if the sh1t hits the fan after you empty your current account to pay for tractor .you need a rainy day fund and as someone said earlier never spend money from cash flow on something that depreciates straight away.

I can understand that. And its a fair point.

But if someone could comfortably afford to buy it without a loan then there is no real advantage , tax or otherwise to getting a loan.

mahoney_j

mf240 wrote: »

I can understand that. And its a fair point.

But if someone could comfortably afford to buy it without a loan then there is no real advantage , tax or otherwise to getting a loan.

And again fair point but none of us can predict an unforeseen circumstance in 2 days ,a Week or a month.u simply need cash flow

Brown Podzol

mahoney_j wrote: »

And again fair point but none of us can predict an unforeseen circumstance in 2 days ,a Week or a month.u simply need cash flow

The question is whether you can afford it or not. I've seen people enter into commitments on loans and fail to meet the repayments on a poor year as well.

jimmy G M

frazzledhome wrote: »

Cash flow. Need to keep cash in reserve. No point hitting a bump in the road and having no helmet

Ok, thx, I thought you were going to say you only borrowed for something which appreciates in value. I agree, btw, always keep a few bob in reserve for a rainy day.

Miname

At 23k id boorow even if i had the cash. its easy to clear it if you need it and its more beneficial to have cash in an account with a bank than an easily cleared loan if a more expensive opportunity arose, like say a land purchase or such.

Farmer Pudsey

realchewytiger wrote: »

Thinking of buying a second hand tractor for 23 k is it better to spend my own cash on it or take out a loan from a bank credit union ect for farm accounts whats the best way to go about it .

There are many permutations some already mentioned. Even if surplas cash in farm account as long as tax is paid then it is usable. However if it is a yearly profit it cannot be written off in a once off purchases for the farm.

First question I always ask in these situations is it really needed. No point in spending 23K on a tractor on a really small operations if all it will be doing is having a transport box behind. Are all other farm development options used up.

On the plus side it is a better investment that a jeep. Interest will cost you over 4K if loan is over 5 years. Leasing is a tax efficient way of writing off the tractor over 5 years to avoid tax however you may need to generate the income to pay for it and this along with interest offset some of the benefit. However if you are a PAYE tax payer it may be tax efficient to write off. However depreciation can be written regardless of leasing if bought with a bank loan or Cash in hand it is depreciated over eight years. With cash in hand the 4K interest is not an issue.

A 23K loan will cost over 100/week over 5 year I prefer to pay up front and relise the tax benefits over time and rebuild capital over time. However I have serious issue's paying 23K for a tractor if tax was only consideration. But if I really needed it I pay up front depreciate and rebuild my reserve over 3-4 years.

onyerbikepat

I know it might sound crazy but I think new tractors are nearly a better investment now than second hand ones. Just from looking through Donedeal, 20 year old tractors with God knows how many hours on the clock are making close to €20K. Buy new, right it off against tax, look after it well and knock over 20 years out of it. It's not so expensive then.
My own little tractor is heading towards 40 years old now and never let me down.:D

Deepsouthwest

Farmer Pudsey wrote: »

There are many permutations some already mentioned. Even if surplas cash in farm account as long as tax is paid then it is usable. However if it is a yearly profit it cannot be written off in a once off purchases for the farm.

First question I always ask in these situations is it really needed. No point in spending 23K on a tractor on a really small operations if all it will be doing is having a transport box behind. Are all other farm development options used up.

On the plus side it is a better investment that a jeep. Interest will cost you over 4K if loan is over 5 years. Leasing is a tax efficient way of writing off the tractor over 5 years to avoid tax however you may need to generate the income to pay for it and this along with interest offset some of the benefit. However if you are a PAYE tax payer it may be tax efficient to write off. However depreciation can be written regardless of leasing if bought with a bank loan or Cash in hand it is depreciated over eight years. With cash in hand the 4K interest is not an issue.

A 23K loan will cost over 100/week over 5 year I prefer to pay up front and relise the tax benefits over time and rebuild capital over time. However I have serious issue's paying 23K for a tractor if tax was only consideration. But if I really needed it I pay up front depreciate and rebuild my reserve over 3-4 years.

That's what I would do as well, but I'm interested in hearing why this may not be the right route.

lakill Farm

ok listen up all

DEPRECIATION is not tax allowable . Ok repeat

So you can depreciate the tractor at 50% a year if you want ok





Now capital allowance is allowable and that's at 12.5% per year or over 8 years on a tractor
so the 23k / 8 years is a capital allowance of €2,875 per year

st1979

nobody knows if this guy 23k in savings or 2 million in savings. so he may well have plenty of reserves or not. my last accountant reckoned pay for it which ever way worked out cheapest. as tax wise was much of a muchness. years ago there was bigger tax benefits to leases but think now it all the same

Farmer Pudsey

lakill Farm wrote: »

ok listen up all

DEPRECIATION is not tax allowable . Ok repeat

So you can depreciate the tractor at 50% a year if you want ok





Now capital allowance is allowable and that's at 12.5% per year or over 8 years on a tractor
so the 23k / 8 years is a capital allowance of €2,875 per year

I think a lot of us when we refer to depreciation it is CA we mean. In my accounts they are referred to as items qualifying for wear and tear. At the end they have a value of 0.

Just a point on leasing my understanding is that strictly speaking after a leasing period you have a balancing payment. Often this is a minimal sum (100 euro) however technically you have to enter the item at it true value into the accounts there this generates a tax libablity strictly speaking