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Farmland Owners to Pay Higher Property Taxes in 2014

February 7, 2013

By Jennifer Stewart, Purdue University


Indiana's farmland owners will pay higher property taxes in 2014 on the heels of an increase in the base rate for assessed land value, Purdue Extension agricultural economist Larry DeBoer says.

The base rate, which is the starting point for calculating taxes on farmland, jumped from $1,630 per acre in 2012 to $1,760 for 2013. Taxes assessed on this year's base rate will be paid in 2014.

The base rate has exactly doubled in just seven years, from $880 per acre in 2007.

The value of Indiana farmland is assessed based on use value rather than market value. So, even if a parcel of farmland borders commercial or residential development, it is assessed based on the income it can generate from farming, not the selling price.

When determining property taxes, Indiana's Department of Local Government Finance takes into account the base rate, a productivity factor and an influence factor. Productivity factors are based on the soil's productivity for growing corn. They are scheduled to rise for taxes in 2014, but according to DeBoer, bills have been proposed in the General Assembly to cancel that change.

The influence factor is a percentage reduction in the dollar amount of the productivity factor to account for conditions, such as frequent flooding, grade or forest cover.

The assessed farmland value has been rising because the base rate is calculated annually based on a number of factors, such as commodity prices, land rents, input costs and interest rates.

"The base rate is calculated using a capitalization formula," DeBoer said. "The rent or net income earned from an acre is divided by a rate of return. The department calculates capitalized values for six years, drops the highest value and then averages the remaining five years to get the base rate.

"Each year, a value from an earlier year leaves the calculation and a value from a recent year is averaged in. The base rate goes up when the value coming in is higher than value dropping out."

Compared with six years ago, farmland rents are higher, commodity prices are up and interest rates are down - a combination that increases the base rate. But there's a four-year lag between the numbers in the calculation and the tax year, so the numbers to be used for 2014 taxes are from 2005 to 2010.

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RELATED TOPICS: Farm Business, Land, Taxes



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