Acquiring Michigan agricultural property involves a number of legal issues. One that should be addressed with an attorney is the effect of the acquisition on the qualified agricultural property exemption (“Ag Exemption”).
The Ag Exemption exempts Michigan agricultural property from certain local school operating taxes, up to 18 mills. To qualify for an Ag Exemption, a parcel must either be classified as agricultural on the local assessment roll, or else have more than half of its total acreage devoted to agricultural use. To the extent that a portion of the parcel is devoted to non-agricultural use, the property can still qualify for a partial Ag Exemption for the agricultural portion.
If property will remain 100% qualified as agricultural after the transfer, the full Ag Exemption can remain in place, and uncapping of the property’s taxable value can be avoided, if the transferee files the required affidavit with the local assessor and register of deeds. Similarly, property with a partial Ag Exemption can preserve that exemption, and only the taxable value of the non-agricultural portion will be uncapped, if the partial agricultural use will continue and the required affidavit is filed. However, if a 100% qualified agricultural property will only be partially qualified as agricultural after the transfer, the transfer will cause the taxable value of the entire parcel to be uncapped, unless preventative steps are taken to separate the agricultural and non-agricultural portions.
Hopefully, those acquiring property that is eligible for an Ag Exemption will take the appropriate actions to secure the exemption. However, should the new owner fail to timely claim the exemption, all is not necessarily lost, even if the transfer was several years earlier. Michigan law does provide for the recapping of the taxable value of qualified agricultural property under certain conditions. Owners that find themselves in that position are encouraged to seek the counsel of a knowledgeable attorney.