Agricultural valuation (Seguin, Fredericksburg, West: tax lien, foreclosed, house)

[Phisch]

In plain english, what does this mean? How does this affect the cost of a piece of land? Is it a good thing to have? Does the land that has it require more/less maintenance?

[Trainwreck20]

That is, I think, an 'Ag Exemption', which taxes the land based on its value in agricultural use as opposed to development potential. It is great to have, but you must maintain the exemption. It can add a huge value to the land during a sale, because it saves you five years on the differential cost in taxes. My folks had 25 acres under ag. exemption and paid a couple hundred dollars or so in taxes per year. The parcel under exemption (out north of Fredericksburg) sold for about $14k per acre ~$280,000). Assuming a 2.5% tax rate, that would be about $7,000 a year in taxes w/o the ag exemption vs. the $200 or so. For five years, that would be about $34,000 in additional value if you intended to pursue an ag exemption anyway.

[Phisch]

So, did they pay $200 / year in property tax then it reverted to $7k/year after that?

[Trainwreck20]

Originally Posted by Phisch

So, did they pay $200 / year in property tax then it reverted to $7k/year after that?

They had two valuations - the homestead portion (~2 acres and a house) which was taxes 'normally' and the ag exempt portion (~25 acres). They sold the land to some 'horse people' who were going to maintain the ag. exemption (it is transferable) and I assume they did, but I have never thought about it. You have to keep the land in ag. service to keep the exemption.

[Phisch]

Thanks!

[jackalope48]

Also you typically have to pay a few years reverted taxes if you take it out of ag exemption. Think it's five years. So if you buy ag exempted and then remove it you have to pay the difference between ag and non ag for the last five years plus normal taxes going forward.

[TexasHorseLady]

If you purchase a property with an ag valuation, you do indeed need to do something to keep it in ag. This can be as simple as having the appropriate number of animal units per acre for your area (cattle, sometimes horses, depending on the county) - East Texas can support a lot more animals per acre than parts of West Texas, for example. You can raise crops, the usual kind of agricultural things. You can also convert to wildlife ag - we just did that with songbirds as our target species, being on a major migration route - and then what's required are different things to provide habitat and food and water sources, predator control, etc.

A lot depends on what size the parcel is, as well.

More details might get you better answers.

[Seguinite]

Originally Posted by jackalope48

Also you typically have to pay a few years reverted taxes if you take it out of ag exemption. Think it's five years. So if you buy ag exempted and then remove it you have to pay the difference between ag and non ag for the last five years plus normal taxes going forward.

Are you sure about this? If the previous owner was maintaining the exemption and actually using the property for ag purposes, there's no reason the new buyer should pay retroactively for something that wasn't theirs. The exemption itself might require renewal every five years, and they'll most certainly raise the taxes once the exemption lapses... whoever the owner is.


Same principle might apply for the people that put a $100,000 addition on their house and the appraisal district doesn't catch it until the property sells 10 years later. New buyer will get to pay based on the new valuation, but I'm pretty sure they're not expected the pay the $40,000 the previous owner screwed the city/county out of over the years.

[IC_deLight]

Originally Posted by Seguinite

Are you sure about this? If the previous owner was maintaining the exemption and actually using the property for ag purposes, there's no reason the new buyer should pay retroactively for something that wasn't theirs. The exemption itself might require renewal every five years, and they'll most certainly raise the taxes once the exemption lapses... whoever the owner is.

The amount owed for taxes is automatically secured by a tax lien. If you want to keep the property you have to pay off the lien or be foreclosed on. There is a Property Code provision that makes the seller personally liable - but that doesn't mean you can count on the seller to pay. The seller (who doesn't own the land any more) knows full well that the taxing entity can foreclose on your property to collect the tax owed.

Either the "new buyer" or the seller can be the one responsible for the action that triggers the rollback. But the new buyer is going to have to pay the rollback to avoid losing the property.

Although some claim an ag valuation should make the land worth more - that is rather equivocal. Worth more than what? If the purchaser is buying the property to develop it then a pre-existing tax based on ag valuation shouldn't cause a price change. The valuation may be worth a premium to a person that was looking for property with such a valuation because it would take them 5 years to get one otherwise.

This isn't about exemptions it's about the method of appraisal and that method is important to your decision. You have to be careful about the liability and the nature of the valuation because you might not qualify to be able to maintain the reduction in taxes.

An ag use appraisal requires the owner's primary source of income to be from agriculture, the land has to have been dedicated to ag use for the last 3 years, and the owner has to intend to use the land for ag purposes for the next year. The owner has to file annual paper work to maintain the ag use appraisal. The tax liability for a change in use or occupation is 3 years (plus the current year).

An open space appraisal doesn't care about the source of income or occupation of the land owner. However in the ag provisions for open space appraisal, the land has to be used for ag uses and has to have been so used for the last 5 years. The owner has to file annual paper work to maintain the open space appraisal. The tax liability for a change in use is potentially up to 10 years.

Originally Posted by Seguinite

Same principle might apply for the people that put a $100,000 addition on their house and the appraisal district doesn't catch it until the property sells 10 years later. New buyer will get to pay based on the new valuation, but I'm pretty sure they're not expected the pay the $40,000 the previous owner screwed the city/county out of over the years.

Nope. Let's suppose you did that on the ag land. You would not get a "rollback" of the higher "actual" appraisal. You would wind up with ag rollback taxes based on the difference in taxes you would have paid between the ag valuation and the value of the home without the addition because that was the record valuation of the home. At any rate, it is not the same principle and logic need not apply. The liability is set forth by statute and it is something you need to be aware of at the time of purchase.

[Seguinite]

I had posted another response but went and did some reading... and now I get your comment 'logic need not apply'. Thanks for the excellent reply.