If your North Carolina property qualifies as a farm, you may be eligible for lower property taxes. Here’s how it works.
How does the NC farm property tax exemption work?
The property tax break for agricultural land in North Carolina is officially the present use value program. Your property taxes are calculated based on your property’s present use value for agricultural purposes rather than the full fair market value the land could sell for.
Present use value is typically a much lower valuation than market value and can result in significant property tax savings.
The big catch is that under North Carolina law, the difference in your property taxes is deferred rather than wiped out. If you stop using the land for qualifying farming purposes, you generally have to pay back the deferred taxes for the previous three-year period.
How do you get farm status for property taxes?
In order to qualify for the present use value program, you must meet several requirements.
Qualifying Activity
In order to qualify for the present use value program, you need to use a minimum amount of land for a qualifying activity.
Agriculture: At least 10 acres actively engaged in the commercial production or growing of crops, plants, or animals
Horticulture: At least 5 acres actively engaged in the commercial production of produce (fruits and vegetables) or nursery and floral products
Forestry: At least 20 acres actively engaged in the commercial growing of trees
Fisheries: At least 5 acres actively engaged in the production of fish or other aquatic species OR at least 20,000 pounds in annual production of the same with no acreage requirement
These requirements mean that even legitimate small farms won’t be able to qualify in some cases. However, you should check the regulations to see if you qualify for an exception to the minimum acreage requirements.
In some cases, you can claim additional acreage dedicated to non-productive uses if it’s part of an agricultural property that also has productive land meeting the minimum requirements. For example, if you have a 12-acre property with only 10 acres used for agriculture, you may be able to qualify the entire 12 acres.
Minimum Income
You also generally need to have an average gross income of at least $1,000 per year for the previous three years. This is lower than the $10,000 minimum for the sales tax exemption.
The gross income generally must be from the sale of products produced from the land. Under 2017 changes to North Carolina law, grazing fees and income earned from selling bees or honey can generally qualify. Certain government payments for soil conservation, land retirement, or tobacco buyouts may also qualify.
Non-production income such as rental income, stud fees, boarding fees, and other services generally don’t qualify. Income from the sale of firewood, pine cones, and pine straw is also generally not considered to be qualifying gross income.
Sound Management
Sound management is essentially following best practices to maximize your net return from the land and maintain it in the long term.
You might enroll in a plan with the USDA farm service agency or other entities. You can also often simply demonstrate that your farming operations follow sound management even if you don’t enroll in a formal program.
Ownership
You can generally own the land as an individual, with your spouse, or through a business entity such as a corporation or LLC.
If you own through a business entity, each owner generally needs to be actively engaged in the agricultural activities or related to someone who is. This essentially excludes non-related owners who won’t participate in farming operations.
Additionally, publicly traded corporations generally can’t qualify for the present use value program.
Should I get my home classified as a farm to save on my property tax bill?
Trying to receive an agricultural land classification is a common move to save on property taxes in other states such as Florida or California. It can also work in North Carolina, but North Carolina’s rules are much stricter.
The North Carolina General Assembly really wants to limit this tax benefit to actual farmers not homeowners looking for a tax loophole.
Most people won’t meet the minimum land requirements. Remember that the minimum acreage generally needs to be land in productive use, so the portion of your property with your home or other features may not count in some cases.
Renting your property out as pastureland for someone else’s livestock is probably the easiest way to meet the requirements if you have enough land. You’ll typically want to have a formal lease agreement in place to document the agricultural use of your land.
Having your home classified as a farm can also sometimes affect your eligibility for the homestead exclusion.
How do you apply for the present use value program?
In order to have your property classified as a farm, you must apply with your county property assessor. The application form is North Carolina Department of Revenue Form AV-5.
This program has many technical requirements, exceptions to qualification requirements, and specific excluded activities. You may want to talk to a tax advisor to discuss how you intend to use the land and make sure you meet the requirements.
The NC Department of Revenue has a more detailed guide available here. Even this guide doesn’t have the complete details, so if you have your own farm, it’s probably a good idea to work with a tax office that specializes in these issues.
Can you lose present use value eligibility?
You may lose your eligibility if you gave incorrect information on your application or change the use of your land.
North Carolina law requires each county’s property assessor to audit one out of eight parcels enrolled in the program each year. You will generally need to show proof of your use of the land and income meeting the minimum requirements.
If the audit finds that you’re not eligible, you may have to pay the deferred taxes plus a penalty.
If you voluntarily change how you use your property and will no longer qualify, you should notify your property assessor as soon as possible. You’ll generally need to pay the deferred taxes from the last three-year period but won’t have to pay a penalty.
