I recently sold a property out in the country. The home sits on about 7 acres and 6 of them have an agricultural exemption meaning the owner is using the land to produce a crop and the county does not tax the land used for crop production. This saves the owner about a thousand dollars in taxes each year in property taxes.
When the land is sold, the new owner may continue to produce the crop and claim the agricultural exemption. If they decide not to do so, the county will assess a rollback tax. The county will go back and calculate what the taxes would have been without the exemption for the past three years and the new owner will pay the amount due. While in this case the cost will only be about $3000, the costs could be substantial for larger parcels or land that has a particularly high value due to its location.
Note that the amount of time covered in the rollback period varies from place to place. I was talking to a gentleman from Washington and he told me they go back seven years where he is currently living.
If you are purchasing property with some kind of exemption and you decide that you are not going to continue that exemption, you can negotiate who will pay the rollback taxes as part of the purchase contract.
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Source: http://www.thebranchteam.com/wordpress/2011/09/11/what-are-rollback-taxes/
Tom Branch and Gina Branch, The Branch Team with RE/MAX Dallas Suburbs, service the greater North Dallas suburbs including Dallas, Plano, Allen, McKinney, Frisco, Lewisville, and Carrollton. While Gina concentrates on traditional listings and buyer/tenant representation, Tom specializes in assisting distressed homeowners to avoid foreclosure. Tom and Gina have published two books (Achieving Rock Star Status and The Field Guide to Short Sales) and are available for speaking engagements in the greater Dallas - Fort Worth Metroplex. Subscribe to The Branch Team Blog.
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Hi Tom,
Very interesting information. Not sure if we have that here in Georgia...maybe something to check into. Thanks for the post and best of SUCCESS to you!
Ouch! Figures, the Fed and State always figure out a way to get ya.
On a larger parcel, this could be quite a substantial bill.
I did not know that! Was this the Farmersville property?
three yrs back- what is the reasoning behind that? Doesn't really make sense to me that the new owner would have to pay rollback taxes when they did not own it three yrs ago. Just sayin