For the alcohol abuse you need to seek help of some sort. Kids are prone to binge drinking more than regular daily drinking. Binge drinking can be very dangerous not only to property but to the long term health of your son. I'm sure he has some anger issues over the divorce, or some issues over something or he would not have taken the front loader to your wife's car. I can't say from my side of the computer screen what the problem is, but it is something that I would encourage you to try to resolve with the help of a qualified councelor; you might want to check with the school for some recommendations?
I think having your son work off the damages by fixing things up at your neighbors property is appropriate. I think having your son deal with his step mother and somehow paying for the repairs to her car is also appropriate . . . even if that means selling the tractor you were going to put away for him and using the proceeds from the sale to pay off the $3500 in damages to her car. But in doing that, then he would owe you the $3500. I don't think that selling YOUR tractor and using the proceeds from the sale of YOUR tractor should remove him of HIS debts, so by selling it you get the money to LEND him to pay off his damages so he can then pay you back. At which point, if he is lucky and you are feeling generous, you can buy back the tractor (or a similar one) and put it away for him for sometime in the future when and if he becomes responsible.
My question is for your neighbor, what is he and his son going to do for you? Afterall he supplied (even if not intentionally) the alcohol that combusted into this event. Is he taking any responsibility and is his son helping your son to do any of the repairs on your property. And I guess is your son helping to do any of the repairs on your property?
Good luck, but please seek help for his drinking and his issues, whatever those may be, I suspect they are causing some of the drinking because he is obviously acting out more than a normal teenager and when he drinks (and lets be honest, most of us drank when we were 15, but most of us didn't take it to this level).