What happens if you lose 1-d-1 ag valuation in Texas (rollback tax)

The lower tax bill that comes with 1-d-1 valuation has a catch: if the land leaves agricultural use, Texas can claw back part of the savings. That claw-back is called the rollback tax.

When it applies

Under Tax Code Section 23.55, if the use of land appraised as 1-d-1 open-space land changes to a non-agricultural use, an additional tax is imposed. The Texas Comptroller explains that the property owner who changes the use owes the rollback tax. Building a subdivision, a commercial site or other non-agricultural use on the land are typical triggers. The Comptroller also lists exceptions for certain kinds of changes, so check with your appraisal district if your situation is unusual.

How much it is

The rollback tax covers each of the three years before the year the use changed in which the land got the lower appraisal. For each of those years, it is the difference between the taxes paid on the land's agricultural value and the taxes that would have been paid on its market value.

• Three years, not five. The Legislature cut the look-back from five years to three in 2019 (HB 1743).
• No built-in interest since 2021. HB 3833 (2021) removed the interest that used to be added to the rollback tax. The Comptroller's tax bill guide notes that interest and penalties now apply only if the rollback bill becomes delinquent.
• When it's due. According to the Comptroller, the bill is due by the next February 1 that is at least 20 days after the bill is delivered to the owner. After that, normal delinquency penalties and interest apply.
• A lien. A tax lien attaches to the land on the date the use changes, to secure payment.

What doesn't trigger it

Switching from one agricultural use to another, such as from hay to grazing, is still agricultural use. Wildlife management is defined as an agricultural use in Tax Code Section 23.51 for land that was already qualified, so converting qualified land to wildlife management under a plan keeps it in ag use. Your appraisal district still decides whether your land meets its standards, so tell it about any change and follow its filing rules.

Losing the valuation without building anything

Valuation can also be lost simply because the land isn't being used enough. If no one cuts, grazes or farms it, the appraisal district may decide it no longer qualifies. If you are buying land with an ag valuation, or inheriting it, find out who works it now and make a plan to keep that going.

How to avoid it

• Keep the land in genuine agricultural use every year. Leasing to a producer is the usual way if you don't farm it yourself.
• Know your appraisal district's degree-of-intensity standards and keep records.
• If you plan to sell or develop part of the land, ask a tax professional about the rollback before you close.

Sources: Texas Comptroller: Agricultural, Timberland and Wildlife Management Use Special Appraisal; Texas Comptroller: Land Use Tax Bills; Texas Tax Code Chapter 23, Sections 23.51 and 23.55. General information, not tax or legal advice.

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