SCHUMER: FEDERAL RESTRICTIONS ARE PREVENTING YATES COUNTY FAMILY FARMERS FROM INVESTING IN NEW EQUIPMENT; SCHUMER BILL HELPS SMALL FARMERS PURCHASE NEW EQUIPMENT THAT WOULD 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 Yates
Standing at Jim & Nate Henderson Farms in Penn Yan, 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 Yates 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 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 incentivizes 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 timeframe 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.
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 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 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.
This is why, Schumer said, 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 can 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 reinvest that money and expand earnings.
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, like Henderson's Farms in Penn Yan operated by Jim and Jill Henderson, to quickly recover costs from purchasing expensive equipment. Schumer cosponsored legislation, the 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 said Jim and Jill Henderson's Farms 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 like cabbage. According to the farm’s owners, 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 for Henderson Farms 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. The 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 this kind of situation could be avoided by aligning the depreciation deduction recovery period with the financing schedule of equipment at five years so farms like the Henderson’s in Yates County, as well as across the Rochester-Finger Lakes Region, would have more cash on hand to finance new equipment purchases and investments in their farms. Farm owners said that having the 5-year permanent depreciation would free up finances and allow them to purchase a new combine for harvesting.
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 NY.
Schumer was joined by Jill and Jim Henderson, owners of Jim & Nate Henderson Farms; Skip Jenson, New York Farm Bureau Field Representative for Yates County; and local farmers.
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.”
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.”