What are Rollback Taxes? How are they calculated, imposed, who pays them and when? Plus, just how far reaching the implications can be. Let’s dive in.
What are rollback taxes?
Rollback taxes are property taxes that are imposed on a property when it is taken out of an agricultural use. The beautiful thing about owning property in Texas is that there are various exemptions that you can get for agricultural use such as having cattle on the property or farming or wildlife plans, for example.
So, how are rollback taxes imposed and how are they calculated?
Taxing authorities used to be able to go back 5 years and charge 7%t interest on top of what the rollback taxes are and they calculate those by taking the difference of what the taxes were when they were paid as assessed at the ag value and then the difference of what they would have been taxed at the regular market value. However, House Bill 1743 changed that and it amended the tax code sections 23.55 and 23.76 effective September 1st 2019. Now taxing authorities can only go back 3 years and assess 5% interest on those roll back taxes which is quite significant when you think about it.
So, who pays rollback taxes?
Obviously, this is always negotiable between a buyer and a seller. But, generally speaking, the party that changes the use to a non-agricultural use is going to be the party that pays the roll back taxes. Again, this is something that’s very important that you always consult an attorney with this.
We actually have a property that we are trying to sell right now and we might have to pay over a hundred thousand dollars in rollback taxes on the property. So, this has far-reaching implications.
Feel free to reach out to us with questions or other topics you’d like to see covered.
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