What is an Ag Exemption?

“I am looking at this 10 acre property, and it says there is an Agricultural Exemption for the taxes. What does that mean?”

It means you hit the jackpot!

Let me explain… If a property has the status for an agricultural property tax exemption, it has met minimum size, use, and location requirements. In order to originally earn that status, the property had to be in agriculture production of some kind for 5 years straight, and show receipts and proof of that information, in order to apply and obtain the status. To keep the status in the future, the farming or ranching activities must be run as a for-profit business and maintained annually.

So why is an ag exemption for property taxes so great? Because it will substantially lower your annual property taxes.

When you are considering purchasing a property that carries a current ag exemption, PLEASE make sure you are working with a broker or agent who fully understands the requirement for the specific county the property is located within.

Each county will have different minimum requirements and categories for exemptions, as different forms of agriculture and the amount of land needed in order to maintain them will vary in different parts of the state. Some counties will require a much larger minimum amount of land, while some counties will require as little as 5 acres (depending upon what type of operation will be conducted).

Why does this matter to you?

If you are purchasing land out of a larger section of property that has an ag exemption, you might be purchasing LESS than minimum amount required for your county. Find out what the category is for the current exemption, this is important because it might be something you are unable to continue to maintain in the future.

What happens if I can’t maintain the ag exemption?

If a property does not maintain the existing agricultural exemption, it will be subject to 5 years of rollback taxes. That means whatever the property taxes would have been without the exemption, for the last 5 previous years, are now owed for that property. This will be thousands of dollars. If you know up front that you cannot maintain the current ag exemption, you need to calculate how much money will be owed in rollback taxes and have that amount set aside to pay when it comes due. It won’t be immediate, the property will first have to lose its status as ag exempt before the taxes will become due.

If you are a seller and know there is a chance your property will not stay in an ag exempt status, make sure the contract stipulates to protect you against any liability for paying those rollback taxes.

Is there anything else I can do other than agriculture production and still keep the exemption?

Yes! You can roll over into a wildlife valuation instead of an agricultural valuation, but that does require annual reports and plans to be submitted.

Our team can assist with both agricultural exemptions and wildlife exemptions. Feel free to give us a call or email to see how we can help you.

2 responses to “What is an Ag Exemption?”

  1. […] A topic that comes up fairly often in my real estate business is the topic of leases – and it actually comes up in more than one format. Sometimes we are looking at a piece of property to purchase that has an existing lease in place with the current owner and a tenant, other times we are considering purchasing property from an investment standpoint to lease it after purchase, and sometimes my landowners need to work out a lease to keep a current Agricultural Property Tax Exemption. […]

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