How to make $2,000,000 being a part-time farmer part 4

In our previous posts, we’ve discussed how to become a bona fide farm, how to qualify for a sales tax exemption, and how to qualify for Present Use Value (PUV) for property tax deferment.

So let’s say your property qualifies for PUV, what does that mean to you exactly? Let’s take an example of a farm that is currently valued at two million dollars for the land only. That farm, under normal property tax rules, would have an annual tax bill of $13,430 for the farm land only. Under PUV the tax bill for the same land is about $180 meaning a savings of $13,250 per year on property taxes. Since farmland is where all the development ends up going as a city grows, you can assume that property values will rise over the years. This means that the PUV savings will only increase year after year as the disparity between farming values and development values grow.

So how do you make $2,000,000 being a gentleman farmer? If you take your $13,250 per year of PUV savings, and tack on about $20,000 annually of sales tax exempt purchases that means you’ll not pay $14,600 annually in taxes. These are taxes you would have otherwise paid on normal property and often purchases are made at a similar rate (a boat instead of a Gator). If you live on your farm, as my father did and as I have, for over 30 years, then you’ll save $438,000 in today’s dollars. Since that two million dollar farm today was worth about $350,000 30 years ago, we can expect a similar increase over the next 30 years. Factoring in the increased PUV savings as property values go up, it means we can safely round our number up to $500,000 easily. Then tack on the $1,650,000 gain in value of the farm itself and you’ve increased your net worth by over $2,000,000 all while having this view every day.

Beautiful view of a horse farm
This could be your morning view.

But wait, you say your fancy McMansion¬†would have increased in value as well so that’s not a good comparison? First, it’s debatable that it would increase at a similar rate. Farmland generally sells for development at well beyond its tax value where houses sell at a much closer price to their tax value (the increase in value is already realized by the time houses are built). But second, regardless you’ve not paid $500,000 in property taxes compared to the McMansion. It is still a net gain of half a million dollars, even if everything else is the same. Anytime you can save half a million dollars, you are money ahead.

A penny saved is a penny earned
$500,000 is a lot of pennies

Saving half a million dollars in taxes over time is significant. When you couple the lifestyle advantages of having acreage, the freedom from regulation, the freedom from neighbors, and the health benefits of being on the farm, investing in farm land for you and your family makes both financial and emotional sense.

Leave a Reply

Your email address will not be published.