Farm Income Expense - Rent or Lease
Farm Income Expense - Rent or Lease
Rent and Leasing
Farm home. If you rent a farm, do not deduct the part of the rental expense that represents the fair rental value of the farm home in which you live.
Lease or Purchase
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The agreement applies part of each payment toward an equity interest you will receive.
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You get title to the property after you make a stated amount of required payments.
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The amount you must pay to use the property for a short time is a large part of the amount you would pay to get title to the property.
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You pay much more than the current fair rental value of the property.
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You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. Determine this value when you make the agreement.
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You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement.
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The agreement designates part of the payments as interest, or part of the payments can be easily recognized as interest.
Example.
You lease new farm equipment from a dealer who both sells and leases. The agreement includes an option to purchase the equipment for a specified price. The lease payments and the specified option price equal the sales price of the equipment plus interest. Under the agreement, you are responsible for maintenance, repairs, and the risk of loss. For federal income tax purposes, the agreement is a conditional sales contract. You cannot deduct any of the lease payments as rent. You can deduct interest, repairs, insurance, depreciation, and other expenses related to the equipment.
Leveraged leases. Special rules apply to leveraged leases of equipment (arrangements in which the equipment is financed by a nonrecourse loan from a third party). For more information, see Publication 535, chapter 3, and Revenue Procedure 2001-28, which begins on page 1156 of Internal Revenue Bulletin 2001-19 at www.irs.gov/pub/irs-irbs/irb01-19.pdf.
See Publication 225 at IRS.gov for additional information.