Dealing with Agricultural Exemptions and Rollback Taxes at Sale

As a seller, you enjoyed those sweet low ag-use property taxes. But what happens when you sell? You need to ensure a smooth handoff of that exemption (for the buyer’s sake and yours) and avoid any nasty rollback surprises. Here’s the game plan:

Keep the Exemption Through Closing: First, do nothing to jeopardize your current agricultural (or timber or wildlife) valuation before the sale. Continue the qualifying use right up until you hand over the keys (or deed, rather). If you have cattle grazing as your qualifier, don’t remove them months early. The rule: land must be devoted principally to ag use on January 1 to qualify for that year. If you close mid-year, your exemption was in place Jan 1, so it carries for that year. The buyer will need to reapply in their name but since use is ongoing, it should continue without break. Provide the buyer any necessary contacts at the appraisal district and records of use to help them qualify next year.

Inform the Buyer: Make it crystal clear to your buyer what they need to do to maintain the exemption. Many are first-timers and might not know the rules. Supply them with:

• The historical use (e.g., “past 10 years we ran 20 cows” or “leased to Bob for hay production”).
• The county’s requirements: minimum acreage, animal units, deadlines for application, etc. Maybe even print the county ag exemption guidelines.
• If you lease to someone for ag, maybe that lease can be transferred or extended so buyer has continuity (if buyer doesn’t plan to farm themselves).

Your goal: set them up so they don’t accidentally trigger a change of use.

Address Rollback Tax Liability: In Texas, if land’s use changes from ag to non-ag, the person who changes the use owes rollback taxes – which recapture the tax savings for the past 3 (formerly 5) years. As seller, if you kept it ag through closing, you won’t owe rollback (unless you, before closing, changed use – which don’t do!). It will be on the buyer if they, say, stop ag use next year. However, this can be a negotiation point in sales:

• Buyers sometimes worry about rollback if they plan to build a home (though 1 acre for a homestead out of ag triggers rollback on that acre only).
• If buyer explicitly is going to develop or change use immediately, they might ask you to reduce price or cover rollback. Typically, sellers resist that (“that’s your decision post-sale, so your cost”). But if you want to be accommodating, you could contractually agree to pay or split rollback taxes if triggered. But be careful – you don’t control what they do after closing.
• Best approach: if buyer plans something like subdividing for homes (non-ag), outline who will pay rollback in contract. Standard Texas contract says buyer is responsible for any additional taxes due to change after closing. Keep it that way unless negotiated otherwise.

Wildlife or Timber Exemptions: If you have a wildlife management use, provide your wildlife management plan and records of activities. Buyer will need to continue at least the same practices. Ideally, connect them with a biologist or extension agent to transition. For timber, supply last timber plan or proof of management. Smooth transition avoids rollback as well.

Partial Sales: If you’re only selling part of your land, note that splitting can cause issues. If each part still meets minimum requirements, they can each keep ag. If one part is too small or won’t be used ag, that part could rollback. So allocate any potential rollback proportionally in the sale contract. Sometimes sellers will pay rollback on the portion that can’t keep ag (maybe taken out for a subdivision). That can be a significant cost – weigh that into price negotiation.

Use a 5-year Look-back when Pricing: If you suspect buyer might pay rollback eventually, understand how much that is (3 years’ difference plus 5% interest now, due to 2021 law change). For example, if your taxes were $1k/year under ag but would’ve been $10k without, that’s $9k * 3 = $27k rollback. Buyer might consider that effectively part of purchase cost. Know that number – it could come up as a request. Some sellers proactively say “we’ve priced it $X assuming buyer will handle any rollback if they change use.” Affidavit at Closing: Typically, there’s a form or statement at closing about ag use. The title company might have you sign something about no change of use prior to closing or acknowledging responsibility. Read it and confirm it’s accurate.

Communicate with Appraisal District: After sale, it’s ultimately buyer’s job to reapply for the special appraisal in their name by the next deadline (often April 30). But it doesn’t hurt for you to give a heads-up to the county you sold the land to X and it was in qualifying use up to sale. And give buyer the number of the ag appraiser at the CAD to follow up. An extra step, but ensures nothing falls through cracks.

The golden rule: no surprises on taxes. Ensure the buyer knows how to keep the ag exemption, and clearly agree on who pays any rollbacks if use changes. By handling this upfront, you avoid a post-sale argument or, worse, a call from a furious buyer who got a big tax bill they weren’t expecting. That’s how lawsuits happen. Instead, be proactive, transparent, and fair – you’ll walk away with your sale done and no lingering tax issues biting you.