This episode addresses maintaining agricultural exemptions on a 50-acre property south of Dallas after ownership transfer, where missing the April 1st filing deadline threatened loss of significant tax benefits. The county confirmed exemptions transfer automatically, but proper documentation and understanding lease requirements remain critical.
Key Takeaways:
- Ag Exemptions Transfer Automatically in Most Counties Ownership changes don’t trigger refiling requirements in most jurisdictions, though updating owner information on file prevents administrative issues.
- Hay Production Offers Easiest Exemption Path Simple Facebook posts for hay removal fulfill agricultural use requirements with minimal cost or management compared to livestock arrangements.
- Verify Lease Terms Before Acquisition Active farming leases with multi-year terms and difficult termination clauses restrict buyer flexibility and reduce property value, requiring pre-purchase investigation.
The property’s $1M mortgage from 20 years ago being sold at 10% of that value would raise red flags requiring explanation, as would any active multi-year farming lease without termination clauses.
(Podcast transcript below)
Welcome to Get Serious. I want to go over agricultural exemptions. I think I’ve touched on them here and there in the past, but this topic came back up for us today with one of the larger parcels that we own. And a lot of folks are familiar with encountering a
You know, the tax benefit of having an ag exempt property, usually that just means that, you know, there’s some type of, as you can imagine, agricultural usage associated with the property that is productive, from a commercial sense, that effectively allows a tax break, on the underlying.
land to not be taxed at, say, typically residential or commercial or industrial property would be taxed at. So different counties will have different regulations, but in general, that is how they’ll operate across the country. So the property that we own south of Dallas,
remarked on this one a number of times, about 50 acres prime location. We chopped it up into three child parcels or allow the parent parcel to be sold because we, you know, hit the Texas minor subdivision state exemption. So, you know, it didn’t need to go through any approvals. It’s just, you know, a survey indicated, hey, we chopped these up. But, you know, the
A parent parcel could also be sold and the entire parcel had an ag exemption at the time that we bought it. Interestingly, we missed out on the previous buyers who were under contract with because the property was actually too flat. You can see the previous podcast about that. We’ve already been getting a ton more activity, including a couple more verbal offers at very solid prices earlier today. I’m still trying to work out those details, but it’s still a prime.
property here. But, you know, as we were going back and forth with my broker for this property, he was like, Hey, did we take care of that ad exemption? And I, know, it just, it slipped our minds for this, you know, when we were under contract and just thinking, Hey, we’re going to get this thing sold. I had asked my team to figure out, okay, what’s the process to get an ad exemption in this County? And of course, utilizing AI for this and the
uh, response came back that generally you need to file for an egg exemption prior to April 1st of the tax year that you want that exemption. And it didn’t indicate, okay, is that, do you need to refile that year after year? So I’m like, Oh man, are we about to lose this, um, you know, key designation on this property. So I called the County right away after that. And it’s like, Hey, you know, I
We dismissed the deadline. What’s the process here? They indicated, hey, there’s not going to be an issue. The ag exemption just transfers year over year. You don’t need to refile so long as nothing else has changed with the underlying property. And then I asked, OK, well, know, ownership changed here. And they’re like,
Yeah, not a big deal, but you can submit another form just so you’re the name updated for the actual ad consumption. So we’re taking care of that today. But it bears worth mentioning, OK, going forward for any properties that both we have as well as your team might acquire, mean, just, again, it gets busy.
Timelines can pass. It’s hard to keep track of everything. Even if you have, you know, solid operational setup, which, you know, generally we do have, um, is to understand, okay, is, is a property in our portfolio labeled, um, agricultural and doesn’t have a tax exemption associated with that. If so, okay, what, what do we need to do on a yearly basis in case we’re holding this for some period of time? Even taking a step prior to that.
just so, your understanding, you know, if a property already has an ad exemption from the previous owner, which, you know, probably would be the case if you have an ad exemption, upon acquiring it, to figure out, okay, what was the, precise ad exemption that we’re getting? What, were they doing to, get that exemption from the County? And so then you.
No, okay, I just need to carry over this and can set, set forth your plan to maintain that, that exemption. And generally you don’t have to do much of anything. if anything at all for most areas, but you always want to be prepared. Okay. Cause it’s just, it’s, it’s a very attractive, designation, obviously to have to pay way, way less taxes for, potentially really valuable asset.
So you want to make sure you don’t get caught flat-footed. So ideally you can figure all that out from the original owner. So then you can just carry over whatever needs to happen once you acquire the property. And then it bears worth mentioning, hey, reach out to the county. Okay, what is their entire process? Or again, you know, initially use AI to figure out, okay, what are the steps here? And you can always double check on that.
to ensure, is there any other paperwork that needs to be done? Property ownership changes to maintain this exemption. Do we need to do anything else? Like, you know, really figure out those answers. So again, you’re not caught in a potentially nastier situation or just, you know, missing out on various deadlines that could actually affect
your ability to carry over that exemption. And so I remember when I was talking with our broker, before we even purchased this property, okay, you know, to make sure we can carry this over, like we did figure out, okay, this particular property was used for hay production. Somebody came on, you know, just took all the hay, boom, move it off. That’s all you needed to do for Ag and Set. Like that’s probably the easiest setup possible, especially if you just have some, you know, pasture land, just wild grass growing.
on the property, that is usually going to be probably, you know, the easiest route, especially if there’s already a precedent set. but even if there isn’t a precedent set, like our broker, Amber was just indicating, Hey, you know, put out a Facebook post or, you know, advertising. Hey, you know, I got a whole bunch of hay on 50 acres out here and you’re just going to get a ton of responses right away. for somebody to just, take care of that and.
you know, especially if the county was more vigilant and like they’re gonna pass by the property and like ensure that agricultural usage is maintained, then you know, at least you have a process in place to account for that. And I’m not sure if that would be just like a random check or they would send notice, hey, we’re gonna schedule a viewing of this property so you could set up the actual agricultural usage.
You’d have to figure that out from the county. Again, if precedent is already set, most rural places are going to be pretty lax about this anyway. So that was an avenue that we’re like, okay, this is probably the easiest one that’s already what the property was being used for. Or if they want an even more visual proof that we’re using agricultural property, the broker’s like, hey, I know somebody.
in the area that has a whole bunch of cattle and he could take them over for a day, let them graze, et cetera. And then haul them back, set up kind of a temporary usage again, just for the appearance, hey, this is like still active agricultural usage. So we had a couple of different strategies and tactics that we could have utilized depending on how.
Again, vigilant, the County might’ve been, especially with the property transfer. But fortunately, um, you know, was kind of kicking myself, man, we missed a deadline here. This is a key property. What’s going to happen. But they’re like, yeah, yeah, don’t worry about it, but always better to be prepared prior to that. And before acquiring any property with an ag exemption, again, go through all those steps and have various, uh, plans and steps that you can take to ensure that you won’t lose out on that ag exemption.
unless of course that is your intention to potentially do a lot more value add and horizontal vertical development that is going to trigger a release of the exemption anyway. So you’re have to determine that on a case by case basis, but usually you wanna save that for the buyer. And so then they can pay any like the various rollback taxes that might come back into play in situations like that.
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