Find out what tax benefits your state offers to farmers.
Whether we like it or not, April 15 (tax time) rolls around every year, and if you look carefully, you’ll find opportunities may exist for cutting your property tax bill. Property tax policies vary from state to state, so you’ll need to do a little digging to see what’s available in your area. Some may require proof of agricultural income, whereas others do not.
The American Farmland Trust revealed in 2004 that farmers pay more in property taxes than the government services they receive. The opposite is the case for the residential landowner. Farmers not only produce the food for those residents; they provide green space that can minimize urban sprawl and improve aesthetics, water and air quality, and wildlife habitat.
Many states have tax provisions that recognize these benefits to society. California has one of the most successful programs restricting land use to agriculture. Farmers can commit to 10-year contracts that reduce property tax rates by 20 to 75 percent if located in designated areas. Michigan offers an opportunity called the circuit breaker farmland tax program. Farmers can claim an income tax credit to offset the cost of local property taxes. They also must commit to a 10-year contract. In the eastern U.S., Pennsylvania offers the Clean and Green program: The landowner is bound by a seven-year agreement enrolling lands into one of three categories—agriculture, agriculture reserve or forest reserve—which provides significant reductions in property taxes.
Keep in mind that wood can be a crop, as well. Pennsylvania clearly recognizes this in its program and many other states do, as well. Christmas trees, firewood, saw timber or other forest products can be used to generate agricultural income from the land that may help qualify a small hobby farm for tax breaks.
Finally, a growing opportunity exists in the form of conservation easements. They may provide benefits like the reduction or avoidance of inheritance tax, a federal income tax reduction for the gift of development rights, and reduced property tax assessment. Farmland conservation organizations, like The Nature Conservancy, work with landowners interested in protecting green space from development. Easements don’t eliminate the management of land in the majority of circumstances but simply protect land from being parceled or developed. Agricultural income is often not a requirement for conservation easements.
Work with a tax professional to investigate the opportunities available in your state to minimize your property taxes. Well-managed forestry and agricultural land uses provide societal benefits beyond commodities. Farmers often pay in more than they receive in government services, so you can feel good about taking a bite out of your taxes!