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“Farm-exempt” status in Texas is a misnomer. Instead, you need to understand and apply for rural homestead status or an appraisal method that allows you to save on taxes if you qualify. You will apply for an “Agricultural Use Appraisal” if you are a full-time farmer, deriving most of your income from the farming. If you put your acreage to agricultural use that is not your sole or majority source of income, you will want to pursue your eligibility for an “Open-Space Appraisal.”
Determine your status. The Texas Comptroller of Public Accounts is a good place to start. If you are just looking to declare a rural homestead, the process is straightforward. You may be able to declare as much as 200 acres as your rural homestead, which protects your land from creditors in most cases. Declaring the allowable homestead exemption does not disqualify you from the agricultural use or open-space appraisal declarations.
Determine your eligibility. If you are a full-time farmer and your land use produces the bulk of your income, you can apply for the Agricultural Use Appraisal. The appraiser will base the decision on your status as the landowner as well as the land. If you will use the land for agricultural purposes that do not provide your primary source of income, you will apply for an Open-Space Appraisal. The land's designation within the last three to five years can affect your appraisal outcome, so ask for guidance to determine eligibility.
Fill out and submit your application. Get the forms from the Texas Comptroller of Public Accounts or your county government office. You will need to submit documentation proving previous land use, even if you weren't the owner, as well as income, the extent of which depends on your application type. Your county or state officials will tell you what documentation you need. Be aware of the application deadline. Some of your submitted information may be public record.
Follow up as requested or necessary. Upon receiving your application, the appraiser will approve, disapprove or deny the application. If the application is disapproved you will need to provide additional information that will allow the appraiser to either approve or deny the application. You will have a specified amount of time to submit the requested information.
Keep track of annual requirements to maintain eligibility. For agricultural use, you will need to file an application each year. The open-space designation is valid until you or a subsequent landowner changes its use or changes categories of use, such as a switch from wildlife management to offering a grazing lease for your neighbor's cattle. Failing to file the application or to report a change in the land use can result in serious tax consequences, so stay in contact with your county tax office.
If you own several acres, you may want to consult with a financial adviser before you apply for rural homestead status for your entire property. The homestead exemption may mean you cannot use the land a security for a loan or otherwise tap the equity in it in emergencies, depending on the type of desired financing. You may be able to survey the land into separate sections and designate just a portion as your homestead.
Thoroughly research the land’s former designation before you buy it, as you may have to pay past taxes, including interest and penalties, if a status change triggered a tax rollback. This may happen even if you did not know about the situation prior to purchase, leaving you to pursue the previous owner for restitution..
- Find Law: An Overview of the Texas Homestead Law
- “Tierra Grande”; Ag-Use Exemption: Fact or Fiction, Judon Fambrough, Jan. 2000 (Rev. Jan. 2010)
- Texas Comptroller of Public Accounts: Guidelines to Texas Tax Exemptions
- Tom Tower, Owner, One Iron Horse Farm, Dripping Springs, Texas
- "Tierra Grande"; Ag-Use Exemption: Fact or Fiction, Judon Fambrough, Jan. 2000 (Rev. Jan. 2010)
- Window on State Government: Property Tax D -- Subchapter D. Appraisal of Agricultural Land
- Window on State Government: Application for 1-d-1 (Open-Space) Agricultural Use Appraisal
- Window on State Government: Application for Residence Homestead Exemption
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