Information on this page is primarily about the agricultural exemption and homestead exemption in Texas. For other states, see your local city ordinance page or contact your local officials.
*Disclaimer, please speak with a tax attorney, certified public accountant, or your local appraisal district for the specific exemption opportunities your land may possess. *
What is an Agricultural Exemption?
An agricultural exemption is a valuation of land and how it is valued in difference to a commercial valuation or market value. Commonly referred to as “farm credits” due to their ability to save on taxes. The land is appraised based on the ability of the land to produce agricultural goods.
What qualifies as an agricultural exemption?
Qualifications for an ag exemption are met if the land has been used for agricultural purposes for 5 to 7 years, is 10 acres or more (depending on the county), there is a single animal unit for every 5 to 10 improved pastureland acres, or a single animal unit for every 15 to 25 acres of native land, is a legitimate farm, or produces a farm product.
Some examples include:
- Farming or ranching for purpose of sale
- Production of fiber crops (cotton, hemp) for sale
- Timber production
- Feedlot operation
- Commercial fish farm operation
- Beekeeping
- Crop dusting
- Custom harvesting
- Growing plants as a commercial nursery for sale
- Veterinary business that make farm or ranch calls
- Future farmers of America (ffa) or 4-H club
- Agricultural vocational courses (teachers only)
In order to qualify, you will need to apply for a agricultural and timber registration number. You can find out more information by contacting a local tax attorney, or visiting the Comptroller Texas website https://comptroller.texas.gov/taxes/ag-timber/
What makes a legitimate farm?
A legitimate farm means you must have a profit motive. Your farm cannot just be a hobby. If you are gardening in your backyard to feed your family that does not qualify, but if you garden to provide local produce at your farmer’s market, you may qualify.
If you can show that you plan to eventually make money off of your land, or show a business purpose for the deductions your farm may be labeled as legitimate.
How long do I have to wait?
With an agricultural valuation, there may be a waiting period before an exemption is granted. If your land has been used for agricultural purposes over 5 of the last 7 years, this is a long enough waiting period. However, there are some exceptions in which speaking with the county appraisal office can clear up any questions.
What is deductible for an agricultural exemption?
One of the main benefits of an agricultural exemption is the ability to deduct expenses for tax purposes. Any farm related expense can be deducted. Including the following:
- purchases of animals, feed, minerals, vet bills, etc.
- seeds, fertilizers, plants
- tools and equipment (rakes, shovels, tractor, tiller, etc.)
- implements for equipment (loaders, extensions, balers, etc.)
- land improvements, building fences or creating a water source like a pond, adding gravel, culverts
- insurance
- auto expenses (mileage or actual diesel or gas bills)
- renting of land or equipment
- repairs and maintenance
- interest paid
- property taxes
- farm labor
- telephone, internet, advertising
- commissions at sale barn
- utilities, although it is better to have a separate meter for farm sources, but there is a way to allocate a percent of the utilities if a meter is providing for personal (your house) and farm (your shop, well, etc.)
Experts suggest keeping a detailed log of expenses with receipts and any records. Be sure to speak with a CPA (certified public accountant) for a full list of deductions. They will ask, “is this an ordinary and necessary business expense according to the IRS?” so be sure to have an answer.
What is NOT Deductible?
There are items that are not considered deductible on an agricultural exemption, pet expenses, land, expenses where there is no profit motive, or any personal use items are not included.
For example, you have a pig that you keep in the backyard that you do not plan to slaughter for profit, breed for profit, or use for any agricultural purpose other than it is your pig in the backyard. Any expenses to feed or shelter this animal will not be deductible as they are considered a pet.
Again, speak with a CPA if you are questioning any expenses that you may want to count towards the exemption.
What animals qualify for an Ag Exemption?
In general, cattle, sheep, goats, and bees are animals that qualify for an agricultural exemption. However, every county and state will have unique rules and requirements, therefore it is recommended to speak with your local tax attorney for the correct parameters.
How many of each animal?
The number of animals varies from county to county based on the “intensity” of the area. There are a certain number of each animal that is typical for your area, these are labeled as “animal units”. Intensity can be defined as the quality of the land you are planning to use for grazing, or the ability to house the animal on the land. Animal units may be a 500lb calf, one cow and one calf, one horse, or one sheep or goat, but these units are different based on the county. For instance, 3 beehives is considered one animal unit in Blanco County, TX, but 6 beehives is considered one animal unit in Gillespie County, TX.
What about chickens?
Chickens are not included in the list for animals that qualify because they have separate requirements that must be met. Chickens are only excepted with an agricultural exemption if they are raised for sale, eggs, or other profitable business.
These birds do not qualify if you have a few chickens in your backyard to provide farm fresh eggs for breakfast for your family.
What is a Homestead Exemption?
A homestead exemption is a legal regime to protect the value of the home from property taxes, school taxes and county taxes if the homeowner qualifies.
What qualifies as a homestead exemption?
To qualify for a homestead exemption, you must be the homeowner of your property and your property must be your primary residence. There are more specific exemptions as follows.
- General residence – you own your home or have partial ownership, the home is your principal residence, and you have a valid driver’s license
- Over 65 exemption – homeowners 65 and older, if they die, spouse 55 or older will get the exemption
- Disability exemption – homeowner that qualities for a social security disability benefit, does not include a homeowner’s children
- Veteran exemption – for veterans who have a disability, their spouses, survivors, and the spouse and survivors of military personnel killed in active duty. The amount of exemption depends on the percentage of service-connected disability.
A homestead exemption can provide a percentage to each approved homeowner. This percentage will be determined based on the appraisal of your home. Speak with the county appraisal office for more information.
Should I go with an Agricultural Exemption or a Homestead Exemption?
If your property has been used for agricultural purpose and you have a profit motive, the agricultural exemption will provide you more benefit than a homestead exemption. However, if you do not plan to live in the space for 5 to 10 years, a homestead exemption may grant you more savings.
Keep in mind, whatever land is claimed for a homestead exemption, cannot be claimed for agricultural exemptions. In addition, a homestead exemption is portable, meaning that those tax savings can move with you to your next location. Also, a homestead application only applies to residential piece of up to 20 acres, anything larger will need to be filed under an agricultural exemption.
Another factor to consider when deciding which exemption to go with is how often you will need to reapply and the risk of losing your exemption. An agricultural exemption needs to be reapplied for every four years, and if you miss the window, you must start the process all over again. A homestead exemption does not need any reapplication after the first time and therefore does not expire.
Check out this youtube video for more information.
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