Bob Kutschbach, owner and broker of Carleton Realty, talks about understanding CAUV (current agricultural use value) and how it can affect a real estate transaction.
CAUV is a program for farmers. It requires that the property makes a modest ($2500) income each year. This income can come from crops, livestock or timber. CAUV allows for the farmer to get a greatly reduced property tax, saving thousands. The property owner signs a multiple year (3 year) contract that they will farm the property for the required years. If the owner stops farming within that contract time they owe back the tax benefits for those three years.
The real issue with CAUV comes in when the property is sold. If a small farmer sells his 10 acre mini-farm to someone who does not plan on continuing to bring in the required $2500 minimum income, the buyer would be responsible for the “recapture tax” for the contract period. This becomes a lien on the property. When it is sold there needs to be an agreement on who pays the recapture tax if it is triggered. The standard contract used by many boards of REALTORS® states that the seller will pay. This makes sense since the seller is the one who has benefitted from the lower taxes. The seller sometimes will argue that the buyer’s responsibility because all the buyer needs to do is continue bringing in the minimum income to receive the tax benefits also. It can be flipped in the contract that the buyer becomes liable for the recapture tax.
This becomes an important negotiation issue when buying a mini-farm or a home with acreage. It is very important that the buyer, seller and both agents identify if the property is currently under CAUV. If it is the contract needs to be carefully structured so that it reads fairly for both parties. If a developer is buying the property then we can understand that the intent is not to continue farming it. The developer is probably paying the farmer a premium price for the land, so the farmer would have enough money to pay the recapture tax. The transfer and the responsibility has a lot to do with who the buyer is and what their intended use for the property.
If you have questions about CAUV please reach out to one of our agents!
