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6 Tips to Help Lower Farm Real Estate Taxes

Farm real estate taxes continue rising.

With grain prices down and profit margins razor thin, more farmers are starting to think about farm property taxes. Some farm investors are passing on deals for no other reason than taxes.

A few years ago, I looked at a nearby farm and was shocked to learn that the taxes were $62.50 an acre. The cash rent was $150 per acre, leaving me little reason to buy that farm. I suggested that the seller protest the taxes, but in retrospect, that suggestion showed my ignorance on the matter.

When I was asked to write an article about rising farm real estate taxes, I first had to wonder if anybody really understands farm-assessed values. We all know that making these determinations has something to do with soil quality and agricultural income. Honestly, until recently, I’d never understood it and had never met anyone who could explain it to me.

I decided there must be at least one person in each county who understands farm assessments; namely, the assessor. Therefore, I contacted one. He sent me a 47-page publication to read, which shed some light on the calculations. 

Also, a local county treasurer explained to me that every Illinois assessor uses Certified Assessed Values, which are calculated by a professor at the University of Illinois for all soil types. 

I contacted that professor, who explained that he was using expected soil productivity, five-year average commodity prices, expected input costs, and a discount rate to arrive at per-acre certified values. So theoretically, two farms with the same acreage, use, and soil composition should have the same exact assessed values. Of course, the tax rates in some counties are double or triple that of other counties, and the rates are multiplied by the assessed values to arrive at the actual tax bill.

I knew from my own farms that I was paying as little as $1 an acre and as much as $34 an acre. (Incidentally, cash rent per acre for those two farms is about the same.) I also knew there was some kind of 10%-increase-per-year limit in Illinois previous to 2015, when there was a change in assessment methodology.

The professor explained the change, which effectively removed the 10% increase limit for the least-productive soils (mine). The old limit was changed to a dollar limit based on median-productivity soils. The state’s goal was to realign low-quality soil assessments with high-quality assessments; the two had grown apart over time. 

One important point to understand about assessed values is that they’re affected by commodity prices four and five years ago, which is bad for your current taxes in times of decreasing prices and good in times of increasing prices.

Some counties and states are in a financial bind now, and they are looking for ways to shore up their budgets, including setting higher fees and higher tax rates, and making changes in assessment methodology. 

Undoubtedly, you are also looking to shore up your farm net income. So what can you do about high real estate taxes? Here are six things to try.  

  1. Ask the assessor for your parcel data. 
  2. Check the total acres by looking at your legal description. 
  3. Check the tillable acres because untillable acres are taxed at a lower rate. 
  4. Make sure that permanent pastures, woods, grass waterways, windbreaks, and perennially flooded areas are on the county map. 
  5. Make sure your soil types listed are in sync with the USDA Web Soil Survey. 
  6. Find out if there is a legally limited annual increase in your state and keep an eye on those increases.

This story was written by Shawn Williamson, CPA for Fick, Eggemeyer & Williamson, CPA's and freelance writer for Successful Farming Magazine.

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