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Hi all....I am looking at some land in N.H., and have a question about current use. I lived in Dover/Durham years ago, now live in Ma., and would like to buy an investment property, with the idea of building in ten years or so when my husband and I are empty nesters. I have been searching online realtors for the past year, and notice that many properties list that the land is in "current use", or that the "cuurent use tax will be paid by seller", or split between seller and buyer.
Could anyone explain what the current use tax or penalty is? If I am looking at land that is in a subdivision, is it likely that the land has already been taken out of "current use" and is now being taxed at a higher rate?(I'm assuming that residential land is taxed at a higher rate)
If anyone can shed any light on this, it would be most appreciated!
Maybe I can help to explain, Hepcat. Most simply put, land placed into Current Use is valued at a much lower rate than market value, so taxes are greatly reduced. Here's a hypothetical example: a 50 acre tract of land in a town with market values of $5,000 per acre, or $250,000 in total value. With a current tax rate of say 25.00 per thousand, the annual tax bill would be $6250. The land owner can apply for Current Use taxation, and if the land meets the criteria, the following April 1, the tax bill will go down. Under Current Use, the value would drop to something in the range of $200 per acre and a tax bill of $250--a huge savings.
Here's the catch: when a tract of land is placed into Current Use, a lien is put on the property, which must be paid in full before clear title could be conveyed. The land can be sold, but the lien remains on the property. When land use changes (for development, etc) there is a "land use change tax" of 10% of the current market value (based on "best and highest use of the land") Even if the current owner has no plans to develop the property, the $25,000 liability looming over the property will reduce the market value.
So, to answer your question, it would very much be in your best interest to have the SELLER pay the land use change tax prior to sale, and the Purchase & Sale should state that clear title to the land will be conveyed). IMO, there is simply no good reason that a Seller who has had the benefit of Current Use (reduced taxes) should expect a Buyer to pay even a portion of the land use change tax. But they'll try it, especially if that Buyer is unrepresented and unknowing of the implications. Also, Current Use isn't Real Estate 101, and when considering a property like this, a real estate attorney's opinion may be prudent.
Quote:
Originally Posted by Hepcat
many properties list that the land is in "current use", or that the "cuurent use tax will be paid by seller", or split between seller and buyer.
Could anyone explain what the current use tax or penalty is? If I am looking at land that is in a subdivision, is it likely that the land has already been taken out of "current use" and is now being taxed at a higher rate?(I'm assuming that residential land is taxed at a higher rate)
If anyone can shed any light on this, it would be most appreciated!
But... if you are buying the land now and not doing anything with it for 10 years or so, letting it stay in current use will keep the taxes down on the lot until you are ready to build. Unfortunately, when you are ready, you'll have to take it out of current use and pay the annoying 10% fee.. but add that into construction costs <sigh>. Otherwise.. if you pay the fee when you buy, or split the cost with the seller (unless you can actually get the seller to pay), you'll pay higher tax or change it back into current use for the duration and STILL have to pay the fee when you're ready to build!
This is our situation. We bought 10 acres to build on in 7 years. We let it stay in current use so it costs us very little while we pay it off. When we're ready to build and move, we'll have to pay - but we'll add it into the construction cost at the time.
I suggest buying a piece of land with part in “current use” with a properly classed building lot. Pay the taxes on the whole parcel while you are waiting and avoid the huge balloon that will add to your building cost when you can least afford the expense. I would also sugggest that you wait until this real estate price collapse bottoms out after a few years before you buy any land.
I believe it works allot like a savings account, whereby if you wish to build you have to pay back some of the tax savings recognized in previous years.
I suggest buying a piece of land with part in “current use” with a properly classed building lot. Pay the taxes on the whole parcel while you are waiting and avoid the huge balloon that will add to your building cost when you can least afford the expense. I would also sugggest that you wait until this real estate price collapse bottoms out after a few years before you buy any land.
My guestimate is at least five years because of clearing the huge number of forclosures expected in the next couple of years. Better yet make the botton in seven to ten years.
Rereading your original post, I see now that you are wanting to buy the land and have it sit for 10 years. In this case, it would be best to have it remain in Current Use until you are ready to develop. And yes, any land that is part of a subdivision has *most likely* been changed over from Current Use to Residential.
As GregW noted, a good solution would be to find land that is partially in current use, with a small portion as a buildable lot. Probably not an easy thing to find...
Unfortunately we won't know when we've hit the bottom until prices start moving back up... One thing is certain--there are many foreclosures out there, and they are not being listed at much lower than typical market value...
When the banks start geting desperate the forclosure prices will drop to below the loan value. The market clearing prices will be very low for a long time. NH will do fairly well because the speculators did not rule our market like they did in Nevada and Florida.
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Current use
