Written By: Leah Chester-Davis, Ron Joines, Judy Wilkerson
Two popular products for leasing come as a surprise to many but are growing in popularity: farm buildings and solar installations.
Pole barns, hang barns, storage barns
One of the biggest surprises for many customers is learning that you can actually lease a building. “We can do just about any type building,” says Joines, vice president and leasing manager of Carolina Farm Credit. “The nice thing about the building is that we can structure the lease arrangement to help customers get the maximum tax advantage. With 100 percent of your lease payments being tax-deductible, that often ends up being a better and faster write-off than the depreciation value would be.”
For most, whether buying or leasing, the goal is to get rid of tax liability. For example, with a loan, you are amortizing over an extended period of years (typically 20 or so) where the depreciation is divided over those years. Lease periods also vary but a typical lease on a building may be seven years. The customer ends up realizing a greater write-off during a shorter period. “Depreciation doesn’t give you near the bang that a lease payment will because depreciation will not be as great as a lease payment during the taxable years since the entire lease payment can be deducted,” Joines explains.
So what happens to the building at the end of the lease? Joines says that you can either purchase it for the stated amount to own it or you can renew the lease amount for a few more years.
Another attractive feature for leases on buildings less than a half-million dollars is that a mortgage deed of trust is unnecessary most of the time. That amounts to a savings of approximately $1,500 to $3,000 in attorney fees and recording fees that would be required for a loan.
Solar installations
Perhaps the most unexpected category and one of the fastest-growing is solar installations. When you think about the rising cost of electricity and with it the large power bills that are part of large farm operations such as poultry growers, turkey producers, or timber companies, it’s no wonder such businesses are looking for alternatives.
“North Carolina is now number two in the country, behind California, in solar installations,” says Joines. “Whether you are looking at investing in a solar system to reduce a significant power bill on the farm, or to sell to a power company, Carolina Farm Credit might be able to help you through our leasing program,” says Joines.
If your on-farm power bill is $20,000 per year or greater, it would pay you to check with Carolina Farm Credit to see if anything can be done to reduce your power bill, says Joines.
A typical scenario in the solar-leasing arrangement is that a farmer will replace power bills with lease payments the first 7 to 10 years. During that time the farmer might even make a small amount of money to offset the lease arrangement. After the lease arrangement ends and the installation is paid for, the farmer has a system that continues to produce power for the farm, eliminating electricity expenses and, in some cases, making a profit.
“You’re not going to make any money during the finance period but you’re not going to lose any money either,” says Joines. “It’s a break-even proposition during the years that you are financing but once you are through financing and you pay for the system, it’s all profit at that point. There will be no more power bill.”
Carolina Farm Credit may be able to assist those who want to invest in solar to produce power to sell to the power company. To learn more about Carolina Farm Credit leasing products, contact your local loan officer or reach Ron Joines directly at 800-521-9952, ext. 2840.