An old adage recites that the only two certainties in life are death and taxes. If you own real estate in Ohio, you pay tax on that real estate every year, whether or not you use, occupy or make money from that property. Ohio has taxed real estate based upon the value of real estate since 1825.
Understandably, most government entities are not required to pay real estate taxes in Ohio. Churches and charities that own real estate do not have to pay real estate tax on property that is used exclusively for religious or charitable uses. If a building is ever used for purposes other than charity or religious activities, the building will be subject to real estate taxation.
There are four main ways that people and businesses may experience a bit of relief from real estate taxes.
First, people who live on the real estate that is being taxed receive a 2.5 percent discount.
Second, there is a 10 percent discount for non-business property.
Third, couples or single people who have an annual adjusted gross income of less than $31,000 are eligible for a “homestead exemption” on part of the tax owed against their principal residences if one or the other of the couple is 65 or disabled. Because property values and tax rates vary, the savings varies by property and location. However, on average, eligible people and couples sometimes save a few hundred dollars per year.
Fourth, there is a property tax adjustment for woods and certain land used in agriculture. The land must consist of at least 10 acres, or, if composed of fewer than 10 acres, have annual, gross agricultural income of at least $2,500. Separate tax parcels that are contiguous to each other can be cumulated to satisfy the acreage or income requirement. And, if an owner of an entity such as an LLC also personally owns contiguous property, those properties can be considered together to determine eligibility under this program, called Current Agricultural Use Valuation or CAUV.
CAUV changes the valuation of applicable property from being set at the “fair market value” (amount earned at a public auction, for example) to an agricultural use value. CAUV is calculated based upon a complex, annually updated formula that considers the property’s soil types and crop prices over the last few years.
Because CAUV is based upon a rolling average from multiple past years, CAUV valuations can and have recently “lagged” in a way challenging to farmers. Illustratively, commodity prices in 2015 were significantly lower than in the past several years. Those past years with high commodity prices are what the newest CAUV valuations consider.
That understandable but frustrating lag can place farmers in a doubly challenging position each time the commodity market goes down. The double challenge is lower commodity prices contemporaneous with higher real estate taxes. Notably, though, farmers benefit from the reciprocal windfall in years when commodity prices are increasing.
Although generally disliked, real estate taxes are an essential resource for our schools and local governments.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-523-5523. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.