This article is featured in the Summer 2021 issue of Texas LAND magazine. Click here to find out more.
Benjamin Franklin observed that “. . . nothing can be said to be certain, except death and taxes.”
Today, that prophetic statement still applies in Texas, where property taxes are a major source of revenue for the state.
Fortunately, if you own rural land in the Lone Star State, there are ways to reduce your property tax burden.
Assessing Land for Productive Value
The Texas Constitution provides special property valuation methods to help rural landowners. Instead of being taxed on its market value, your agricultural land may be taxed on its productive value.
The difference can be significant. That’s because the price you pay for the land is usually much higher than the income it generates.
Ag law expert Tiffany Lashmet gives the example of a 1,200-acre northwest Texas ranch. It produced $30,000 in gross revenue from cattle and hunting leases in 2015. The tax bill would have been $45,880 based on market value. Because of open space valuation, the owner paid $1,687 in property taxes.
“Without these special valuation methods, farmers often would owe more in taxes than they could generate from agricultural production,” says Lashmet, Texas A&M AgriLife Extension specialist in agricultural law.
Helping First-time Landowners
Newcomers to rural Texas may not be aware of these property tax relief options—often called agricultural tax exemptions.
“If it’s their first time buying rural property, a lot of customers we work with don’t know about ag exemptions. They don’t realize how much they can reduce their taxes,” says Barbara Golden, credit office president with Lone Star Ag Credit in northeast Texas.
Brett Riff of Capital Farm Credit says his team makes a point to explain ag use valuations to new customers.
“An ag exemption is part of the value proposition of becoming a rural landowner,” says Riff, who’s vice president of lending strategy management. “If you’re moving from an urban area, you may lose some traditional city services, which are funded through taxes. But it is very possible to gain a larger real estate asset base while lowering your ad valorem taxes.”
Qualifying for Ag Valuations
To make the most of special-use ag valuations, find out if you and your property qualify under the Texas Tax Code.
Section 1-d appraisal or “agricultural use valuation” This valuation method is for farmers and ranchers who earn their living from agriculture. Both the land and landowner must qualify. The owner’s primary occupation and income source must be agriculture. And the owner must intend to use the land for agriculture in the coming year. For the previous three years, the land must have remained in continuous agricultural use. An annual application is required.
Section 1-d-1 appraisal or “open space valuation” This method is for landowners who use their property for agriculture, timber or wildlife management—but don’t necessarily rely on the land as their primary income source. The property must have been used primarily for agriculture in five of the past seven years at the intensity level common for the area. Only the land qualifies. For an open-space ag valuation, land use may include:
Crops • Livestock • Poultry • Fish • Cover Crops Certain Exotic Animals • Beekeeping • Timber
Qualifying land also can be left idle for rotation or government programs. Timberland can only be used to produce wood for ag improvements or construction, such as barns and fences, on the owner’s adjacent open-space land.
Managing for Wildlife
Agricultural land can be managed for
wildlife and still be valued at the agricultural tax rate. To qualify, it must be used to propagate or maintain a sustaining, breeding, migrating or wintering population of indigenous wild animals for human use.
The landowner must implement at least three of these seven practices:
1. Controlling habitat
2. Controlling erosion
3. Controlling predators
4. Providing supplemental supplies of water
5. Providing supplemental supplies of food
6. Providing shelters
7.Making census counts to determine population
Before the primary land use is changed to wildlife, the property must have qualified for open space use the previous year.
When applying for this land use change, the landowner must submit a Wildlife Management Plan for Agricultural Tax Valuation. The plan details the intended management practices and native species to be managed. Species may include migrating or wintering birds and animals. Feral species don’t qualify.
Maintaining the Valuation
When a property with an ag exemption sells, the new owner must reapply for the exemption. But some commercial mortgage lenders ask the buyer to remove the existing ag exemption before they’ll finance the property.
Not Farm Credit.
“At the loan closing, I always remind customers to stop by the county appraisal office to notify them of the change in ownership, and request continuation of the ag exemption,” says Golden. “You don’t want to let it lapse, because it can be difficult to reinstate.”
That’s not the only reason.
Riff warns that when land use changes or the ag exemption is lost, a tax rollback may occur. When this happens, the landowner is billed for the difference between the taxes paid and the taxes that would have been owed at fair market value for the last three years—plus interest.
“This is why it’s important to work with a lender who understands the value of exemptions,” Riff says.
Applying for an Ag Valuation
Applications should be submitted to your county appraisal office before May 1.
You can get application forms, Wildlife Management Plan documents and more details online from the Texas Comptroller’s Office and/or the Texas Parks and Wildlife Department.
You also can speak with your Farm Credit lender if you have questions about agricultural property valuations.