It is said that there are only two things that are certain in life: death and taxes. And unfortunately, if you own property in Texas, you will likely experience that second one.
One important provision of the Texas Property Code and the Texas Property Tax Code is the provision dealing with agricultural appraisal of land. This is typically referenced under the misnomer, “agricultural exemption,” which is inaccurate due to the fact that one is not “exempt” from paying taxes just by obtaining 1-d-1 status. The 1-d-1 appraisal is simply an appraisal method that differs from appraisal methods for single family, commercial, and other property types which typically use market value or capitalization rate for a specific type of business. For the purposes of this article, we will use the term “agricultural exemption” because that’s what is most commonly used in the community.
Many individuals own this type of property and have never sought or received 1-d-1 appraisal. Discussing your eligibility with you local appraisal district may not be enough, as there are relatively few property tax consultants or employees of the appraisal district who are familiar with the inner workings of the 1-d-1 property tax provision. Even fewer people are qualified to advocate for your rights and obtain the most advantageous values using the agricultural appraisal methodology of the Property Tax Code.
Seeking qualified advice from a Texas Farm or Texas Property Tax Attorney should be your first step in your approach to represent you from start to finish in this process.
Texas Property Tax Attorney Michael Farah maintains several agriculturally appraised property of his own and knows the financial importance of obtaining that designation. Because many Texas cities have a combined tax rate around 3%, it is very difficult to invest in and seek a decent return from high valued investment property due to losing a substantial portion of your return on wasted taxes. Most valuable land in Texas can be millions of dollars and would otherwise be entirely unaffordable if it were not for the appraisal methodology allowed under 1-d-1 of the Texas Property Tax Code
It is possible, however, to own a valuable, wealth-producing farm, ranch, or agricultural land all while incurring almost no property tax liability when compared with the income potential of your investment.
Many extremely valuable properties have maintained their agricultural exemption appraisal methods as a means to preserve investment property while significantly reducing property taxes. This is typically a beneficial option, as long as you plan on holding that property for several years or more due to the addition of roll back taxes that typically come with converting land from agricultural to another type of appraisal method. Just because you own land does not mean you have to be a farmer or rancher.Most sophisticated real estate investment firms utilize experienced attorneys and real estate brokers when purchasing properties and simply leasing out that land to individuals who are able to use the land in a way to qualify for 1-d-1 agricultural exemption. The 1-d-1 exemption is different from the 1-d exemption, which is typically used by people who generate a majority of their income from agricultural activities. See our article on 1-d exemptions for more information.
Be careful when purchasing property which previously was granted a 1-d-1 appraisal because timing is critical of all 1-d-1 renewal applications. If your land receives agricultural appraisal and you fail to notify the chief appraiser of a change in agricultural use, you may be required to pay a penalty for your failure. The penalty traditionally comes in the form of a substantial additional tax plus interest (a “rollback” tax) if you stop using all or part of the property for agriculture. The appraisal district has wide latitude in retroactively applying rollback taxes if they later discover a property was granted 1-d-1 appraisal exemption when they shouldn’t have been.
To summarize, the agricultural 1-d-1 appraisal methodology as it exists today can become extremely complex depending on the actual use of your property. In order to evaluate the appraisal methodology, the Texas Property Tax Appraisal Method Handbook for Appraisers is often consulted in developing the value of the property, a link to which can be found here.
This brief description above is but the tip of the iceberg which is the agricultural exemption, or appraisal methodology. Do not rely on anything contained herein to advocate by yourself: seek qualified legal or tax advice for your particular situation.
Consult a Texas Agricultural Exemption Attorney before you try to obtain this valuable appraisal method on your own. We have saved investors, ranchers, and rural homeowners thousands of dollars on their taxes by advocating on their behalf.