Do I need to seperate the ag from the house when buying the property to minimize my taxes?

[Michael W.]

I am likely to make an offer on a farm property with a home to raise my kids and ideally hold on to it for my kids and their kids... My inituition is that tax savings over that long of a period is significant so I want to do this right.

Current tax roles on the property basically the value of the ag land is ~50K & taxes on the ag land are only ~$20. The house is currently valued at approx $150K and taxed at approximately $3K...

Comps in the area of current sales and all listings show that ag land is really worth at least $225K and the house (with its acre) is at most $175K...

The listing is just for the house with the acerage and we think we can get it for ~$400K or less...
I am likely to make an offer on a farm property with a home to raise my kids and ideally hold on to it for my kids and their kids... My intuition is that tax savings over that long of a period is significant so I want to do this right.

Current tax roles on the property basically say the market value of the ag land is ~50K & taxes on the ag land are less than $20. The house is currently valued on the tax roles at approx $135K and taxed at approximately $3K...

Comps in the area of current sales and all listings show that the ag land is really worth at least $225-$250K and the house (with its acre) is between $150-$175K...

The listing is just for the house with the acreage as a single item and we think we can get it for ~$400K or less..

I think that technically the land is two roughly equal size lots (one with the house and one not) that have been worked as a single farm and taxed together for well over a decade.

The realtor is thinking that I could likely get the home and the half lot to appraise for most of the purchase price and do a conventional loan to cover most of the entire deal and basically get the other half lot for free or pay some cash...

I am concerned that the combined market value on the tax roles is currently only $200K and once I buy it it becomes recorded at $400K and they may decide to try to keep the land at 50K and stiff me by saying that my home is now worth $350K and more than double the taxes to $6-7K.

Do I need to structure my offer to somehow make it clear that I am paying, for example, $250K for the ag land & $150K for the house?

If I do any financing, to minimize the long term taxes, do I really need to do an ag loan for the land side and a conventional home loan for the house (and make sure the home loan/valueation are kept low)?

The Real Estate Attorney in the area I was going to talk to about this had a sudden death and had to reschedule and I really don't want to delay my offer for fear that someone else will buy it (multiple people have been also checking it out).

Does is matter how I offer and pay for it?

Any thoughts as to what I should do?

[Bill Gulley]

Hi, I think you Realtor is right. If your house appraises with the lions share of the total with, say no more than five acres, it can go in the secondary market if comps have similar land area. So, the lot and the house should go as the deal. If you purchase another type of property in that contract, it should have a stated value agreed to. This will make underwriting the deal easier and the appraiser/lender can just exclude the additional land. Doing this seprately requires tow deeds and make sure the lender does not take both for collateral, as they usually will if they can. Even better, I'd do a seprate deal on the land and pay cash and I'd have the closing agent make me a deal for closing that at the same time. I don't know how you assessor uses sales, they don't get a copy of the contract but they can see the deeds, so make sure the deed does not recite the sale price if that is allowed in your state, for ten dollars and other good and valuable consideration is commonly recited where I am. Assessments are diferent from place to place. Some places require that you use the property for an ag purpose to keep that basis. I got 40 acres and alloweed the seller to keep hoofed animals on site past the required period to qualify the property for the next assessment. In some places, if you don't carry on ag activities, it may revert to another category for taxation. Depending on zoning, if that is lost, you may not be able to regain that status, especially if you're in a built up area. Before you buy, a quick call to the assessors office won't hurt, find out the rules, before the contract, you don't have a sale price if they ask, but you can bring up these issues and they will tell you what the rules are. Bill.