Optimum age for trade?

[jwcinpk]

In talking to a farmer local he told me that he trades his equipment every 4 to 5 years (to new) because he can trade as cheap as he can keep the old going and seldom has to worry about a breakdown. Looks like he would lose a bundle on trading. I can see he would'nt have to worry about breakdowns. What do you guys think?
I know on my 3 year old Mahindra I was expected to take a 35% (roughly) loss on a new trade. How could anyone afford to lose 35% every 4 to 5 years? I know this gentleman is not rich and farms a lot, I am just trying to capture his logic!

 

[Farmwithjunk]

Most farmers that trade frequently are taking advantage of tax breaks to offset some of the difference in trade-in vs. new tractor (combines ect.) Bigger, high horsepower equipment is in a different realm than smaller compacts and utilities. And it helps a great deal if that farmer is trading a POPULAR piece of equipment. Some brands trade better than others, as well as some implements trade better.

There is no "golden rule" so far as I know when it's time to trade. EVery tractor, every tractor owner, and every tractor dealer has it's own set of "rules" when it comes to REAL trade or resale value.

Something else to keep in mind. The "curve" on which trade/re-sale values are based will curve downward somewhat for a few years. In time, that curve turns north and the value starts to INCREASE (if the tractor is kept in average to good condition). My old Massey 150 (1972) was around $5000 new. I thought about trading it back in the 80's. I was offered $3200 then. I looked at one for sale near here a few days ago. It was priced at $6500. It sold before I even had the chance to look at it. Good USED tractors hold a strong resale (most brands anyway).

A great deal of what a dealer will offer for a trade has to do with his business, and how they move used units. Some dealers would rather NOT handle used tractors. They see it as "competition" against their NEW units on the lot.

So, no "carved in stone" answer to that question.

 

[jwcinpk]

This guy has all Deere equipment. I can't see where he would be taking advantage of tax incentives because he doesn't work a full time job. Just the farm. Fairly small operation in the world of farms. 100 - 200 acres plus maybe 100 more leased. Strictly a beef cattle operation. Rolls about 500 rolls of hay every year, but that's about all.
Has anyone traded 4 -5 year old equipment recently? and if so what kind of trade did you get?
I was actually looking at his 5420 cab, but he wants more for it than I can buy a new Mahindra 7010 cab for.

 

[Birdhunter1]

When farming for a living and you have a breakdown when you need the equipment or machine and you can loose an aweful lot more than just the harvest or hay crop that you need to get in.

I know a farmer that trades his combine in every other year in a lease program ($25,000/year) and he gets one that is one year old, so the oldest his machine ever gets is a max of three years then it's gone and a 1 year old replaces it. Is it worth it??? Another friend of mine just spent about $30,000 on his combine (CASE/IH 2188) over the winter, when a rotor goes bad it ain't pretty! You do the math, farmer #2 owns a well taken care of machine while farmer #2 is in a newer machine and probably won't have the expnesive repair bills when it gets some age on it.

Like someone said, alot of it goes along with what tax breaks they can get and what their accountant tells them they need to spend before the end of the year. Another way to look at it is if you buy a new truck and keep it till it's got 150,000 miles on it at 10 years old or you trade it at 50,000 miles after 4 years..... what will you get a better trade in deal on on the new one?

 

[cowboydoc]

This guy has all Deere equipment. I can't see where he would be taking advantage of tax incentives because he doesn't work a full time job. Just the farm. Fairly small operation in the world of farms. 100 - 200 acres plus maybe 100 more leased. Strictly a beef cattle operation. Rolls about 500 rolls of hay every year, but that's about all.
Has anyone traded 4 -5 year old equipment recently? and if so what kind of trade did you get?
I was actually looking at his 5420 cab, but he wants more for it than I can buy a new Mahindra 7010 cab for.

We usually trade all of our equipment about the same, sometimes sooner depending on use. At five years we usually get close to what we paid for the equipment because the newer ones are more expensive. On average we probably lose about 10-15% from what we paid new on trade.

 

[dgl24087]

Full time farms are businesses. Businesses get tax incentives for investing in new equipment.

 

[cowboydoc]

Full time farms are businesses. Businesses get tax incentives for investing in new equipment.

There are no special tax incentives for full time farms. It's the same as any other business that buys equipment, you depreciate it out pure and simple but there sure are no extra incentives.

 

[plumboy]

He may have been talking about the accelerated depreciation that ended in 05 I think.But in all reality that deal is pretty good if you took advantage of it and traded again as soon as the equipment was depreciated out.As long as you do good in trading with the dealer and you keep your machine in good condition.Farming and construction are hard on equipment,and if you are doing a good volume in either you can most certainly take advantage of trading off on a regular basis.Need a good relationship with a dealer and excellant credit if you finance so you get the best rates,0% hopefully,but then your interest is tax deductable also.Having new/newer equipment is a perk of having a good business,and its usually the downfall of a bad business.

 

[cowboydoc]

He may have been talking about the accelerated depreciation that ended in 05 I think.But in all reality that deal is pretty good if you took advantage of it and traded again as soon as the equipment was depreciated out.As long as you do good in trading with the dealer and you keep your machine in good condition.Farming and construction are hard on equipment,and if you are doing a good volume in either you can most certainly take advantage of trading off on a regular basis.Need a good relationship with a dealer and excellant credit if you finance so you get the best rates,0% hopefully,but then your interest is tax deductable also.Having new/newer equipment is a perk of having a good business,and its usually the downfall of a bad business.

True plumboy but ANY business could have taken advantage of that. It wasn't just a farm/ranch tax break. You could use it for vehicles too if you had a business.

 

[plumboy]

Not sure why that came across as only for farmer/ranchers.