SCHUMER: FEDERAL RESTRICTIONS ARE PREVENTING MOHAWK VALLEY FAMILY FARMERS FROM INVESTING IN NEW EQUIPMENT; SCHUMER BILL WOULD HELP SMALL FARMERS PURCHASE NEW EQUIPMENT TO INCREASE EFFICIENCY, SAVE MONEY & HELP KEEP THEM IN EXISTENCE
Current Federal Restriction Greatly Constrict Small Farmers’ Ability To Purchase Expensive Farm Equipment; Farmers Are Forced To Use Old & Inefficient Equipment Until It Breaks Down, Stagnating Growth, Constricting Already-Tight Profit Margins and Sometimes Delaying Harvest
Schumer Bill Would Create New Incentives For Small Farmers To Quickly Recover Costs From Purchasing Expensive Farm Equipment; Family Farmers Will Save Money
Schumer: Feds Should Plant New Tax Incentives For Montgomery County Family Farmers
Standing at Hudson River Tractor in Fultonville, NY, U.S. Senator Charles E. Schumer today said the current federal tax code is preventing farmers from investing in new farm equipment. The modern equipment available for farmers today, while expensive, is fitted with the latest safety features to help prevent injury and loss of life, as well as technology that increases efficiency and employs emission controls that help reduce air pollution and fertilizer runoff. Schumer said if small farmers had better incentives to purchase new farming equipment, those in Montgomery County and around New York State would be more inclined to make these costly investments. Therefore, Schumer urged his colleagues in the Senate to support the bi-partisan tax plan that would help family farmers and ranchers finance new equipment, putting money back in their wallets, so they can invest in their business and strengthen the local economy. This bipartisan bill, the Agriculture Equipment and Machinery Depreciation Act, is supported by the American Farm Bureau and the National Farmers Union.
“Farmers throughout the Mohawk Valley need better incentivizes to 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 timeframe would be good for business. Having more cash on hand, and sooner, would be a boon for farmers across Montgomery County and the Mohawk Valley economy,” said Schumer.
Schumer explained that farmers purchase new equipment for many reasons, including newer, safer technology becoming available, advances in engineering lowering the maintenance costs of new machinery and increased fuel efficiency and emissions controls that help reduce pollution. However, Schumer said, small, often family-owned farms must wait until their equipment has exceeded its usable life because replacing it can be incredibly costly.
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 farm equipment over time through lower taxes. The length of time that this deduction is taken is known as the recovery period.
Schumer said that, under the current federal tax code, 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 averaging financing schedule of machinery. According to surveys from the USDA’s Farm Service Agency farmers and ranchers finance farm equipment and machinery for five years on average. However, farmers currently have to take their depreciation deductions over a 7-year recovery period. Aligning the recovery period with the financing schedule at five years would help farmer finance new equipment purchases and invest in their farms. The depreciation deductions farmers receive over many years is more valuable if farmers receive them in a shorter time frame, as there is less inflation over a shorter period of time and having more cash on hand enables farmers to pay off loans, or reinvest that money and expand earnings. The effect of taking the deduction over a shorter time period would be more investments in farms and the strengthening of local farm communities.
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 NY.
As a result, he is pushing legislation that would restore and make permanent an incentive that would allow small farmers to quickly recover costs from purchasing expensive equipment. Schumer cosponsored legislation, the bipartisan Agriculture Equipment and Machinery Depreciation Act introduced by Senator Klobuchar (D-MN), which would amend section 168 of the Internal Revenue Code to make it easier for farmers to pay for farm equipment. This legislation would improve the depreciation deduction by moving the 7-year timeline up to five years in order to better match farming equipment financing schedules and give farmers more money up front for their purchases.
Schumer also supported legislation in the Senate Finance Committee that would reinstate an expansion of a tax provision known as Section179 expensing. This provision, in place from 2010 to 2014, would also help farmers recoup the costs of new equipment. Currently, this tax provision allows small businesses to expense up to $25,000 (the maximum expensing allowance) of the cost of a new or used qualified piece of equipment, including certain farming equipment. A business can use Section 179 to expense equipment bought that year, up to a $200,000 phase-out threshold (the value of the total cost of qualifying property for that year). This legislation Schumer supported would increase the maximum expensing allowance, from $25,000 to $500,000 and would increase the phase-out threshold from $200,000 to $2,000,000 for 2015 and 2016.
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. 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. It would also bring greater business opportunities to places that sell farm equipment and machinery, like Hudson Valley Tractor and Randall Implement Co. in Fultonville.
Schumer was joined by Tory Northrop, Chief Operating Officer of Hudson River Tractor, and Mohawk Valley farmers.
“While we would all like to see a permanent extension of section 179 depreciation, we applaud Senator Schumer’s efforts on behalf of our farming community by sponsoring and advocating for the Agriculture Equipment and Machinery Depreciation Act,” said Tory Northrop, Chief Operating Officer of the Hudson River Tractor Company. “We know from dealing with our local farmer’s that their decision to invest in their operations is highly dependent on their ability to recover the cost of depreciation on those assets more quickly, and most importantly, with some certainty. This revision of the tax code would do just that and we believe it would have a very positive impact on the local economy.”