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In the broadest possible terms, a tax is “a compulsory contribution to state revenue, levied by the government.” There are many different types of taxes that apply to all types of people and situations including: sales taxes, federal taxes, income taxes, and property taxes. Property taxes are also called “Ad Valorem” taxes. This type of tax is based on the value of the property being taxed.” The taxing authority (your local county government), has power under the Texas Constitution to secure payment of Ad Valorem taxes by placing a special lien on your property. This lien can extend not only to the property you owe Ad Valorem taxes on, but on “all property, both real and personal, belonging to any delinquent taxpayer shall be liable to seizure and sale for the payment of all the taxes and penalties due.” As interesting as this sounds, let’s discuss some of the exemptions that many people qualify for, but don’t really know about.
There are a few important exemptions to the Ad Valorem tax. Three worth noting are (1) the “Agriculture Use Exemption” (Ag Use Exemption); (2) the “Open-Space Exemption”; and (3) the “General Homestead Exemption.” While the Ag Use Exemption and the Open-Space Exemption are commonly referred to as ag exemptions, they are not really exemptions at all. Both “exemptions” are actually appraisal methods. Instead of tax being assessed on the market value of the property, the Ad Valorem tax is assessed on property’s capacity to produce agricultural products. Nonetheless, for simplicity’s sake we will refer to these two appraisal methods as the Ag Use Exemption and the Open-Space Exemption.

Ag Use Exemption: The Ag Use Exemption applies to a landowner whose primary occupation or source of income is from the agricultural use of the property. To qualify, the land must have been designated to be used exclusively (or developed continuously) for agricultural use the past three years. So, if you want to claim this exemption, mark your calendar for January 2016! Further, the landowner must currently be using and intend to use the agricultural land as his/her occupation or for-profit business venture during the current year. This makes sense because agriculture must be the landowner’s primary occupation and source of income as well. Both the landowner and the property must qualify to receive this exemption. This exemption must be claimed each year.

Open-Space Exemption: Without regard to the occupation of the landowner, land qualifies for the Open-Space Exemption if the land is principally devoted to “agricultural use” or to produce timber or forest products and has had such a use for 5 of the preceding 7 years. Agricultural use includes: (1) cultivating the soil; (2) growing crops; (3) raising livestock; (4) harvesting logs or posts for use in constructing or repairing fences, barns, etc.; (5) use of land for wildlife management; and (6) land between 5 and 20 acres that is used to raise or keep bees for pollination, or to produce human food or other products with a commercial value. Unlike the Ag Exemption, the owner does not have to apply every year for this exemption, because once the land qualifies “it retains its qualification until the ownership of the land changes or its eligibility has ended.” There are certain types of land that do not qualify for this exemption, such as land owned by a nonresident alien or land that is within the corporate limits of a town or city—but even then there are certain exceptions.

Homestead Exemption: The most common of these exemptions, the General Residence Homestead Exemption, applies to a property owner’s home, including up to 20 acres and any improvements used for residential purposes. While it is true that some people own multiple houses and think of each as a residence, this exemption only applies to where the owner lives most of, if not all of, the time. Further, the residence must have been owned and occupied as the principle residence on or before January 1st of the tax year. Additionally, property owners can only claim this exemption on one piece of property, in or outside of Texas. In the case of those with multiple homes and property, if you choose to switch homes you might still be able to apply this exemption to the same (and first) house. This can be done if the homeowner does not switch the exemption to another residence (but keeps it for the same house) and intends to move back to their primary residence within two years. That’s a pretty good deal! These are only three exemptions property owners can claim, but there are many more. Other exemptions apply to disabled veterans, individual’s age 65 or older or disabled, and exemptions on school and county taxes. Whether you use your residence to grow crops or simply live out your days, it’s well worth it to claim your tax exemptions!

THE TAKEAWAY: It is worth your time and effort to look into what exemptions you may be able to claim. One thing to note – there are specific time periods for claiming exemptions so do not delay in claiming the appropriate exemption with your local appraisal district.
– The Business Team
Scott | Josh | Jeremy

The Allen Firm, PC
181 S. Graham Street | Stephenville, Texas 76401
Ph: 254.965.3185 | Fax: 254.965.6539

*This article has been written and provided for educational purposes in an attempt to provide the reader with a general understanding of the particular topic and area of law covered in this Article.  It is not to be relied upon for any purpose.  The reader acknowledges the underlying analysis and legal conclusions referenced in this Article may be inaccurate by the changing of the law or by a controlling court opinion to the contrary.  No attorney-client relationship exists until an appropriate engagement letter has been signed. Contact our Firm to discuss how the contents of this Article may apply to your specific situation.