Buying a tractor under an LLC

[Bennyboy]

Wasn’t sure which forum this should be in but wanted some opinions. I plan to talk to my lawyer but my appointment is 3 weeks away and I’m just doing some research.

I’m wanting to buy a new tractor for personal use. A possible opportunity has presented itself to also use it for a business. If the business works out, I would make an LLC and would like to claim the tractor.

Question: can I go ahead and purchase the tractor and later add it to an LLC I create or should the LLC be created first? Multiple things have to come together for the business to work, and it may not ever happen. But I need the tractor either way and sooner would be better than later.

Thanks.

 

[Plinker66]

Ask your tax accountant and your insurance agent

 

[rbstern]

There may be specific tax strategies that a lawyer or CPA would recommend, but generally speaking, you can sell/give personally owned assets to an LLC (or other business/corporate entity) and the LLC can pay you for the asset, or owe you for the asset, and you've effectively transferred the accounting impact to the LLC.

So, for example, if an LLC buys a tractor for $20K, and the tractor has a 10 year life expectancy, a CPA would typical treat it as a $2K/year amortization (cost of tractor spread out over 10 years for accounting purposes).

If you bought the tractor, and then transferred it to the business six months after purchase, the CPA might treat the purchase as having a 9 year amortization.

The LLC doesn't have to pay you cash, if it doesn't have cash to do so, or it doesn't suit your needs to do so. It can be put on the LLC books as paid in capital (just as if you had given the LLC cash as part of the start up process).

One other element to consider: If you buy it personally and finance the purchase, the interest is NOT tax deductible. If the LLC buys it and finances it, the interest IS tax deductible to the LLC as a business expense. In the personal finance situation, you can transfer the loan obligation to the LLC, even if you don't formally transfer the loan. You just have the LLC reimburse you or directly make the loan payments. The lender won't care, as long as the obligation is maintained, and this way, the interest is tax deductible. But it's important to be able to prove the tractor really is used by the LLC.

Because it's a tractor (agricultural equipment), there may be specific wrinkles in the federal or state tax code that apply, so be sure to discuss that with whoever will do your books. Those wrinkles may not apply unless you are doing agricultural work.

 

[Bennyboy]

There may be specific tax strategies that a lawyer or CPA would recommend, but generally speaking, you can sell/give personally owned assets to an LLC (or other business/corporate entity) and the LLC can pay you for the asset, or owe you for the asset, and you've effectively transferred the accounting impact to the LLC.

So, for example, if an LLC buys a tractor for $20K, and the tractor has a 10 year life expectancy, a CPA would typical treat it as a $2K/year amortization (cost of tractor spread out over 10 years for accounting purposes).

If you bought the tractor, and then transferred it to the business six months after purchase, the CPA might treat the purchase as having a 9 year amortization.

The LLC doesn't have to pay you cash, if it doesn't have cash to do so, or it doesn't suit your needs to do so. It can be put on the LLC books as paid in capital (just as if you had given the LLC cash as part of the start up process).

One other element to consider: If you buy it personally and finance the purchase, the interest is NOT tax deductible. If the LLC buys it and finances it, the interest IS tax deductible to the LLC as a business expense. In the personal finance situation, you can transfer the loan obligation to the LLC, even if you don't formally transfer the loan. You just have the LLC reimburse you or directly make the loan payments. The lender won't care, as long as the obligation is maintained, and this way, the interest is tax deductible. But it's important to be able to prove the tractor really is used by the LLC.

Because it's a tractor (agricultural equipment), there may be specific wrinkles in the federal or state tax code that apply, so be sure to discuss that with whoever will do your books. Those wrinkles may not apply unless you are doing agricultural work.

Thanks. Luckily, the tractor is 0% interest currently if I finance or I may consider a cash purchase if the deal is good enough.

 

[rbstern]

Thanks. Luckily, the tractor is 0% interest currently if I finance or I may consider a cash purchase if the deal is good enough.

Most of the tractor 0% finance deals carry a higher purchase price. You might be paying thousands above cash price. Be sure to check that detail with the dealer. It's a bit less transparent than the typical new car scheme of "choose the rebate or the low interest rate."

If the LLC is profitable, a financed purchase with an interest rate might actually save you money vs. paying cash for the tractor. Hard to know without a lot more specifics, but definitely not a black and white scenario.

 

[greg vess]

Most of the tractor 0% finance deals carry a higher purchase price. You might be paying thousands above cash price. Be sure to check that detail with the dealer. It's a bit less transparent than the typical new car scheme of "choose the rebate or the low interest rate."

If the LLC is profitable, a financed purchase with an interest rate might actually save you money vs. paying cash for the tractor. Hard to know without a lot more specifics, but definitely not a black and white scenario.

Remember in retail there are no free lunches. You will pay one way or another. Usually when items are offered and 0% interest all the discounts and rebates are null and void. It's typically a this or that scenario. You either get the 0 interest and the discounts are not offered. If you can afford it pay cash and take the heavy discounts. It's not always the case but 95% of the time it is. Very seldom and I mean very seldom they will allow the discounts and offer the 0 % interest. Those adds are to get buyers in the door and then they flip you in payments. I am not saying there won't be combined but the discounts will severely limited. When it comes down to buying hot ticket items most buyers are interested in payments when it boils right down to it. That's how they suck you in.