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Red River Valley | If one paid cash for a new tractor ($250,000.00 ) and spread that depreciation out over 7 years that depreciation would be a good thing to carry against future earnings.
but the Problem comes when the opposite is done IE - buying a new tractor with minimum down and taking the full purchases price as depreciation in the year it was bought. thus leaving you with $225,000.00 in payments and NO depreciation left. this causes one to have to than make payments out of taxable income for the next X years.
When big problems arise is when you take the full depreciation in year one and then take the tax savings from that depreciation and either spend it on toy's , use it to push up land values ( this was very popular this go around ) or disperse it as a bonus to corp. officers which sounds like what may have been done in your case, if I have followed your story correctly so far.
My guess is you have a fairly new line of equipment ( a lot of 1-3 year old ) that has been fully depreciated and has a large annual payment due to the manufactures of the equipment. If this is true than you need to find out what you absolutely need for equipment to survive and figure out a way to hold onto that equipment and let the rest go back to the lender ( any equipment that is in the 1-3 years old and is financed through the manufacture is almost certainly worth less than what is against it).
Your problem is not unique to you, many have been doing this although I suspect yours is extreme and needs a tuff love approach to be fixed.
from following your story it is clear the farming entity you are in is insolvent and any fix that does not start with that premise will just be a reshuffling of the deck chairs on the Titanic.
Good luck
Edited by Tara Farms 12/29/2015 12:41
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Depreciation
