There is a tax exemption for agricultural uses, and when you buy vacant land that has been in this tax exemption, you have the option to continue the tax exemption, or to pull it out and convert all of the acreage to residential tax use. This is relevant when you purchase a five acre parcel that has been in this tax exemption, if you intend to build a home on this parcel. But there is a trap for the unwary that could come back to bite you in the future, and I’m talking about a huge tax bill for the past seven years. Here’s how it works.
Tax Exemption: Saving Property Taxes
Washington law will give you a tax exemption if you use the land for an agricultural use, which could be raising animals or growing crops like hay or any crop (any use for “food or fiber”). If you have five acres, for example, you can segregate one acre for your home and leave the other four acres in the tax exemption. [See RCW 84.34 and WAC 458.30.200]
Tax Exemption: The Trap for the Unwary
In order to qualify for the tax exemption on a five acre parcel, you must have an income from your crops or animals of at least $1,500 per year for at least three out of the last five consecutive years. If at some point in the future you are the beneficiary of a random property tax audit, and if you do not meet all of the requirements in the law, you will immediately be assessed property tax equal to the past seven years, and it is due and payable within 30 days.
When you buy vacant land that has been in such a tax exemption, if you don’t intend to raise crops or animals, you will not continue the tax exempt status, which means either you or the seller pay the past seven years taxes immediately. There’s a dirty little trap for a buyer in all of this. If you decide to continue the tax exemption, but you don’t actually raise crops or animals or don’t make the minimum gross income from your farming activities, you will owe back taxes for seven years, even if you have owned the property for only a couple of years.
My advice to you if you are buying vacant land is to make sure this is resolved to your satisfaction before you sign a contract to purchase the land. Either the seller agrees in writing to pay it, or you agree in writing to continue it. But know what you’re getting into when it comes to the Clallam County tax exemption.
Possibly Related Posts:
- Tax Assessed Value v. Sales Price
- Bell Hill Homes and Tax Assessments
- Washington Taxes
- Assessed Tax Value vs. Sales Price
- How the New First Time Home Buyer Tax Credit Works