What is an Ag Exemption and Why is it Important?
Owning a farm, ranch, or other agricultural purposed land creates many complications for real estate management, compliance, and maintenance. But many farmers don't know all the available options to save them money on taxes or increase land value.
An agricultural exemption (ag exemption) is one of the money-saving options Texas farmers can enjoy.
What is an Ag Exemption?
An ag exemption may sound like a tax break, but it's actually about land valuation. Land that qualifies for an ag exemption will have property taxes based on the farm's productive agricultural value rather than the land's market value.
Qualifying for an ag exemption often reduces your property tax payments significantly, making them a highly valuable exemption. But qualifying for and maintaining an ag exemption is a complex process.
What Agricultural Activities Qualify under Ag Exemptions?
Most agricultural production qualifies for an ag exemption– everything from raising animals to beekeeping to wheat. But you do have to produce at a certain threshold to qualify. Your requirements will depend on the county you live in, but guidelines often include the following:
● A minimum acreage (usually ten or more acres of farmland)
● The land is primarily used for farming
● The land has been farmland for at least five of the last seven years
● Possibly an intensity or production minimum
What's the Difference Between an Ag and a Homestead Exemption?
Some confuse an ag exemption with its cousin, the homestead exemption– we call them cousins because they are only distantly related. An ag exemption changes a property's value from standard market to production-based valuation.
On the other hand, a homestead exemption is a simple tax break for a primary residence producing non-commercial agricultural products. Homestead exemptions are relatively simple to get and do not require reapplication.
Special Considerations
While ag exemption status can significantly reduce the weight of your property tax payments, they are difficult to qualify for and maintain. For example, an ag exemption is not a continuous status like qualifying for a homestead. In addition, you have to reapply for ag exemptions, meaning you must maintain the minimum requirements provided by your county.
And if you lose your ag exemption (or you sell your land to someone who won't continue farming), then you or the new owner can be required to back pay 3-5 years of property taxes.
Many lenders hesitate to finance land purchases under ag exemptions and may pressure you or your new buyer to drop the ag exemption status.
Want Help Finding Ag Exempted Land?
Agriculture is at the heart of Texan living and is protected by the state constitution. But finding and purchasing qualifying land (or selling currently exempted land) is becoming increasingly difficult.
At AltaTerra Realty and Auction, we work with local Texans to complete the best real estate transactions for their business. And that includes helping you through the challenges of navigating ag exemption.
Call us today to set up an appointment and find you the perfect land for your family or business!