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Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 355
Experience:  Former IRS Revenue Agent
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I am about to sign lease papers on a used tractor. I thought

Customer Question

I am about to sign lease papers on a used tractor. I thought it was to purchase this tractor. He agreed to 4 payments of 42 k over the next 4 years. What are the pros and cons of this deal.
Submitted: 3 months ago.
Category: Tax
Expert:  Dr. Fiona Chen replied 3 months ago.

Dear Customer,

At this point, it seems that you already sensed there is a discrepancy on the whether this is a lease or this is a purchase.

What if anything happens during the four year period, who will have what responsibility? What if the machine breaks down, who is responsible for repair? If the machine is broken and out of commission, do you still need to make payments until the end of four years? At the end of four years, do you own the equipment? Who is carrying the insurance on the equipment?

$168,000 payment term is like a house. Closing such a deal, when dealing with a house, you need attorney and title insurance company and insurance. And that is a one-time deal. Your deal will last for four years. Many, many things can go wrong in that period of time.

Since you are in a farming community, would you please look around to get an attorney practicing in the area to help you at least review the contract you are about to sign? Make sure that such an attorney has no interest in the other party. Also get a CPA practicing in the area to advice you further.

It is recommended that you consider taking out a bank loan or equity loan on your house to purchase the equipment with a lower price. It is easier to deal with an institution than with an individual in this case.

The only pro I can see is that probably this could be the only way you can get a tractor because you have absolutely no other way to get one. Otherwise, there is no pro. Even so, you still need an attorney and a CPA to help you in advanced, and probably along the way for the four long years.

Please feel free to follow up.

Regards,

Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP

Customer: replied 3 months ago.
You are right about the pro. It's the only one I can get but it has a catch. A business partner who will be half owner and he will run the machine
Expert:  Dr. Fiona Chen replied 3 months ago.

Dear Customer,

If you have a business partner, it is becoming worse and not better. Please absolutely get an attorney to not only review this lease you are about to sign. There needs to be a contract between your partner and you. Are you liable for everything if anything happen to your partner?

This 168,000 decision can make a person decide to leave this field or this business. This machine and its liability coming with it can be much more than this amount.

If your partner is the farmer and you are not, I will leave the deal on the table and walk away.

Please feel free to follow up.

Regards,

Fiona

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