IT’S IMPORTANT TO UNDERSTAND THAT AN AG VALUATION IS NOT A TRUE EXEMPTION LIKE A HOMESTEAD EXEMPTION.
INSTEAD, IT’S A SPECIAL TAX VALUATION BASED ON THE LAND'S ABILITY TO PRODUCE INCOME THROUGH AGRICULTURAL USE. This distinction is crucial: while a homestead exemption reduces the taxable value of your home, an AG VALUATION assesses your property taxes at a LOWER RATE due to its AGRICULTURAL PRODUCTIVITY.
UNDERSTANDING THE DIFFERENCE
A HOMESTEAD EXEMPTION reduces the taxable value of your primary residence, thereby lowering your property tax bill. For example, if your home is worth $300,000 and your state offers a $25,000 homestead exemption, you will only be taxed on $275,000 of your home’s value. This exemption is tied to your status as a homeowner and applies regardless of how the property is used. More on homestead exemptions here..
In contrast, it’s a SPECIAL TAX VALUATION BASED ON THE LAND'S ABILITY TO PRODUCE INCOME THROUGH SPECIFIC AGRICULTURAL ACTIVITIES. This valuation reduces the taxable value of the property based on its agricultural productivity, not its market value. This distinction is critical because it means the savings come from how the land is used, not from a reduction in its assessed market value.
EXAMPLE: MARKET VALUE VS. AG VALUATION
Let’s say you own a 50-acre piece of land.
WITHOUT AN AG VALUATION:
The county appraiser determines the market value of the land is $1 million because it’s in a desirable location with potential for development. If the property tax rate is 2.5%, you would owe $25,000 in property taxes annually.
WITH AN AG VALUATION:
If the land is actively used for qualifying agricultural purposes (e.g., grazing cattle, growing crops), it may qualify for an AG Valuation. Instead of taxing the land based on its market value of $1 million, THE COUNTY CALCULATES THE TAXABLE VALUE BASED ON THE INCOME THE LAND CAN GENERATE THROUGH AGRICULTURAL PRODUCTION.
For example, if the land’s agricultural productivity value is $50,000, you’d pay property taxes on that amount instead. AT THE SAME TAX RATE OF 2.5%, YOUR ANNUAL PROPERTY TAX WOULD DROP TO JUST $1,250—A SIGNIFICANT SAVINGS.
WHY THE DISTINCTION MATTERS
Understanding this distinction helps you navigate your property tax responsibilities and maintain compliance. Here are a few key points to remember:
AG VALUATION REQUIREMENTS: Unlike a homestead exemption, which requires ownership and residency, an AG Valuation requires that the land actively supports a qualifying agricultural use. This could include grazing, crop production, or wildlife management. The land must generally meet minimum acreage requirements and have a history of agricultural use (e.g., five of the past seven years in Texas).
HERE ARE KEY FACTS TO KEEP IN MIND:
5-YEAR RULE: It takes 5 consecutive years of qualifying agricultural activity for a property to become eligible for an AG Valuation. The property must meet these requirements, not the individual owner.
CONTINUITY MATTERS: If the previous owner began the 5-year timeline but it HASN’T BEEN COMPLETED, they or a NEIGHBORING PROPERTY OWNER can sign an affidavit verifying the property was in agricultural use in verifying the years under different ownership.
LOSING THE VALUATION: If the AG Valuation is lost, it will take ANOTHER 5 CONSECUTIVE YEARS of qualifying activity to regain it.
POTENTIAL RISKS OF LOSING THE AG VALUATION: If the land ceases to meet the qualifications for agricultural use, you may face a rollback tax. Rollback taxes recapture the savings from prior years and apply them retroactively, often with interest. For instance, if you stop using the land for agriculture and it’s valued at market rates, you might owe significant back taxes for up to five years.
FAILING TO REFILE AFTER A PROPERTY TRANSFERS OWNERSHIP could result in the loss of this valuation, potentially leading to significantly higher property taxes.
WHY THIS MATTERS FOR BUYERS AND SELLERS
If you’re purchasing land with an AG Valuation, it’s crucial to UNDERSTAND THE REQUIREMENTS TO MAINTAIN THE VALUATION. Sellers should disclose whether the property qualifies for AG Valuation and whether it has been consistently used for agriculture. Buyers should evaluate whether they can or are willing to continue the qualifying agricultural use.
For example, if you buy a property with an AG Valuation but don’t intend to use it for agriculture, you could face higher property taxes and potential rollback taxes. On the other hand, if you plan to graze livestock or cultivate crops, the AG Valuation can be a valuable way to reduce your tax burden while maximizing the land’s productivity.
Understanding the nuances of an AG Valuation ensures you’re not caught off guard by tax implications and can take full advantage of the savings it offers when used correctly.
An AG VALUATION is also a strong selling point when marketing a property, as it can significantly lower the overall tax burden. By reducing property taxes, an AG Valuation directly impacts monthly payments, making the property more affordable for buyers and increasing its appeal—especially for those looking to use the land for agricultural purposes.
HERE’S WHAT YOU NEED TO DO TO APPLY FOR THE AG VALUATION:
CONTACT YOUR APPRAISAL DISTRICT Reach out to your county’s appraisal office to confirm the required forms and documents.
GATHER DOCUMENTATION Typically, this includes proof of agricultural use and any forms specific to your county. If applicable, obtain an affidavit from the previous owner or neighbor to verify ongoing agricultural use.
SUBMIT BEFORE THE DEADLINE Ensure all forms are submitted by April 15, 2025 to maintain your valuation status.
When purchasing a property with an AG Valuation, it’s important to note that the NEW OWNER MUST REAPPLY TO MAINTAIN THE VALUATION under their ownership. AG Valuations do not automatically transfer with the property. If the new owner fails to reapply or meet the necessary requirements, the valuation can be lost, leading to significantly higher property taxes.
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