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Cut Your Taxes With An Agricultural Exemption

BY TREY GARRISON Anne Barnett has seen it all. The Florida real estate broker is also a licensed commercial appraiser and has developed and sold properties in Key West, Georgia, and throughout North and Central Florida, including Gainesville, where she


Anne Barnett has seen it all. The Florida real estate broker is also a licensed commercial appraiser and has developed and sold properties in Key West, Georgia, and throughout North and Central Florida, including Gainesville, where she bases her company, Southern Property Services. Her clients run the gamut from savvy investors to greenhorns like the South Florida attorney who hired her not long ago. The man and his partners had just bought 232 acres. “These weren’t land guys. They just about bought it sight unseen. This was an investment for them,” she says.

Barnett got to work and evaluated the property. To her surprise, she discovered planted pine trees, a fact not noted on the county tax rolls. As in many states, agricultural land in Florida is typically taxed at far lower rates than land designated residential or commercial. Planted pine trees are one of the myriad ways to lower a property’s assessed value. The catch comes at closing. Just because title changes hands doesn’t mean the planted pines exemption does too.

“This is one of the most low-maintenance exemptions you can have for a tract of land like this. In fact, appraisers only come out about every five years to evaluate these, if that tells you anything,” Barnett says. She regularly sees landowners and investors in Florida and Georgia who have no idea of the exemptions, tax credits, and other deductions that are available. A lot of owners aren’t even aware that exemptions are also available for low-maintenance improvements.

The bottom line is that by filing the appropriate paperwork and securing a simple exemption, the landowner’s property tax bill dropped from $17,000 to about $800, a 95 percent savings. “I’d say that’s noticeable,” she says.

Stories like this abound in Florida and are a source of continual annoyance for local governments, which tend to treat absentee landowners as cash cows. John Meshad, a Sarasota attorney who owns more than 50 acres with an appraised value greater than $5 million, could have been assessed at more than $95,000. But because he maintains cattle on the land, his tax liability in 2006 was less than $5,000. Harry French, a part-time Boca Raton resident with significant holdings just a stone’s throw from the Gulf of Mexico, initially had a tax liability of about $50,000. But because he planted coconut palm trees, his tax bill is now less than $100. Both landowners were roundly criticized in a newspaper article even though their operations were well within the limits of the Florida law. The Sunshine State’s exemptions, like those in many other states, can be quite generous. A wide range of qualifying uses exists in Florida, including bee yards, horse-breeding operations, orange groves, and even alligator farms. The subject lands don’t even have to be rural.

The 2005 records from the Orange County tax assessor stated that in this county alone, there were 2,295 parcels totaling 123,899 acres that utilized the agricultural classification with a total assessed value of $2.2 billion. After exemptions, the assessed value declined 85 percent to $334 million. Ag exemptions can even benefit those who don’t own land. A recent story in the Orlando Sentinel profiled a Florida¬† cattleman, Steve Maland, who owns a herd of 400 head despite the fact he doesn’t own a single acre of pastureland. His herd is spread out over 6,000 acres in four Central Florida counties, acreage owned by land developers and speculators. Maland gets grazing rights on land he couldn’t afford. The landowners get ag exemptions without having to own their own herds. Although some county appraisers complain this goes against the spirit of the exemptions, it’s all above board. Local review boards, as well as the courts, routinely side with landowners. “There is a symbiotic relationship in our service,” Maland told the Sentinel. “If a landowner is staring down the barrel of the tax gun, he might see what we do as beneficial.”

That’s certainly the case with John Benda, the owner-operator of Fuel City No. 2. His nationally known truck stop sits at the confluence of Interstate 30 and Interstate 35E in downtown Dallas. Fuel City was recently recognized as serving some of the best tacos in Texas, but the long line at the taco stand is not its most distinctive feature. The herd of longhorn cattle grazing on the far side of the big rigs is. Benda estimates that pasturing the longhorns on the land behind the truck stop saves him about $30,000 a year. And judging from the wide-eyed stares, it’s not bad for business either.

Many states have numerous exemptions or land-use classifications on the books. A good number of these date back to the 1950s and were a response to the post-war boom and subsequent suburban growth. City folks started buying land in outlying areas previously reserved for farms and ranches. Commercial development followed, and land values began to climb. Higher taxes hurt family-run farms and ranches, so state legislatures enacted agricultural use exemptions, which lowered ad valorem taxes and shielded this important constituency from rising costs.

Exemption regulations differ from state to state and in most cases are not limited to full-time ranchers or farmers. For instance, in Texas most of the land designated for exemption, including the pasture behind Fuel City, is done so under open-space regulations, which only require that the land be devoted to agricultural use. The landowner can be a farmer or a Fortune 500 company.

“For most landowners, it’s a big savings,” says Wesley Crooks, a land broker in San Angelo, Texas. “There are a lot of requirements to get the exemption, but in Texas it transfers from owner to owner.” In the Midwestern and Plains states, in addition to ag exemptions, lawmakers are looking to help encourage a new generation of smaller farmers. Iowa enacted a state tax break in 2006 designed to save landowners up to $8,000 in property taxes if they rent up to 320 acres to young farmers. A similar program has been in place in Nebraska since 2000.

Darrell Dunteman, an Illinois accountant who specializes in rural land, puts out a regular newsletter called Farm and Ranch Tax Letter. In it, he offers advice on everything from little-known tax deductions to the kind of exemptions and write-offs that can save landowners significant amounts. He advises landowners to seek out managers who can source federal and local dollars as well as identify exemptions for making environmentally friendly improvements, such as planting grasses or developing wetlands.

Fellow Midwesterner and land management expert Bill Winke puts it more succinctly: “It sounds funny, but the best friend you can have in offsetting costs and taxes will often be your county appraiser and your local soil office.”

By contrast, Western states don’t have nearly as many ag exemptions on the books. Credit this to lower population density and the lack of large urban centers. Greg Fay, owner of Fay Management and Fay Ranches in Bozeman, provides management and brokerage services to ranch buyers and fly-fishermen angling for blue-ribbon trout streams in his home state of Montana as well as in Colorado, Idaho, Oregon, and Wyoming. His typical client is an affluent professional from the East or West Coast. Most likely they’re already sold on the terrain, so the first thing Fay sells them on is the idea of a conservation easement.

A conservation easement is a federal vehicle that has been described as the “legal glue that binds a property owner’s good intentions to the land.” The property owner retains title to the land but surrenders the right to develop or subdivide his land through a perpetual deed restriction. No two conservation easements are alike. Each is tailored to the unique character of the land. “This is an attractive program to people with sizable incomes,” Fay says. “The income tax benefits are¬† excellent.”

The value of the easement as a charitable gift is determined by an appraiser who values the property before and then after the deed restrictions are applied. The difference between these two values is the amount of the charitable gift for tax purposes. Some states, including Colorado, Virginia, Maryland, and North Carolina, offer deductions from state income taxes as well. “You’d be surprised how quickly people who may have never been philosophically conservationminded suddenly become conservationists,” Fay says.

One of the most significant conservation easements involved Maine’s Pingree family (see page 37), which sold development rights to 762,192 acres to the New England Forestry Foundation. The Pingrees didn’t take a write-off; they opted for cold hard cash: a cool $28 million or close to $37 per acre.
Fay says landowners should look beyond exemptions for ways to save money while being stewards of their land. In Montana alone, programs are available to landowners for everything from habitat to wetland and riparian improvements. The programs are designed to offset costs for landowners through outright grants or cost sharing.

“The state wants to accomplish certain environmental and habitat goals,” Fay says. “You know trout fishing is big here, and money is available for improving the streams on your land. And this is exactly the kind of thing a lot of land buyers coming to Montana are looking for anyway. They aren’t for the most part buying the land to develop it commercially. They want a piece of land they can enjoy now and for their children.

They want to get back in touch with the land and have that piece of it that’s just their own. So in a sense they are getting a benefit or a break for something they would be doing anyway whether it’s improving the land or just ensuring it doesn’t get developed.”

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Posted in April 2007, Cattle, Farming, Magazine, South, Taxes, Trey Garrison

5 comments on “Cut Your Taxes With An Agricultural Exemption

  1. john potter says:

    I bought 3.7 acres last year out in the county and I am exploring the possibility of getting an exemption to grow pecan trees on it. I also plan to build a home on the place. Does anyone have any advice ?

  2. bennie harper says:

    we have 320 acres in palo pinto county because of drought we have sold all but 3 cows could we be fined for not having usual amounts of cattle to apply for approved tax deductions the next tax period we heard there is a 3 year deferment due to texas droughts we intend to increase herd when conditions improve please advise if we are at risk

  3. Mary Johnson says:

    We own a 30 acre ranch, we have several feeders and deer blinds. Rent the place out throughout the year. Can we get a tax exemption on this?

  4. karen sullivan says:

    Every county has different agricultural tax exemption. To learn about the exact laws you need to go to your property appraiser office in your county and talk to them.

  5. karen sullivan says:

    Every county has different agricultural tax exemption rules. To learn about the exact laws you need to go to your property appraiser office in your county and talk to them.


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