In Texas, when agricultural land loses its 1-d-1 exemption and reverts to market-value appraisal, the county can collect back taxes for the three preceding years plus interest. This is called the rollback tax. For high-value agricultural land, the exposure can be significant and arrives with little warning.
The rollback tax equals the difference between what was actually paid under the agricultural exemption and what would have been owed at market-value appraisal, for each of the three prior tax years. Interest accrues at 5% per year on each year's difference. The three-year lookback period was reduced from five years in 2019.
Common triggers include: selling the land to a non-agricultural buyer, converting land to residential or commercial use, allowing agricultural use to lapse, subdividing and changing the character of the tract, and certain construction activities that alter the agricultural nature of the land.
In most cases, the party that changed the use of the land is responsible. In a sale, buyers and sellers often negotiate over who bears the rollback liability. If not addressed in the contract, disputes can arise after closing.
For families who might sell land or change its use, planning ahead is essential. Options include structuring the sale to include rollback in the pricing, transitioning land uses in a controlled way, or ensuring sufficient liquid assets are available to cover the tax obligation without disrupting the operation.
HRP Financial helps Texas agricultural families understand and plan for rollback tax risk as part of a broader financial strategy. Schedule a session with Kyle to review your land situation.
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