Differential Assessment and Circuit Breaker Tax Programs

Tax incentives are widely used to maintain the economic viability of farming. All states have at least one program designed to reduce the amount of money farmers are required to pay in local real property taxes.

The most important type of agricultural tax program is known as differential assessment. Every state except Michigan has a differential assessment program that allows officials to assess farmland at its agricultural use value, rather than its fair market value, which is generally higher. Agricultural use value represents what farmers would pay to buy land in light of the net farm income they can expect to receive from it. Full fair market value represents the amount a willing buyer—whether farmer or developer—would pay for the land. Differential assessment is also known as current use assessment and use value assessment.

Three states—Michigan, New York and Wisconsin —allow farmers to claim state income tax credits to offset their local property tax bills. These programs are called “circuit breakers” because they relieve farmers of real property taxes that exceed a certain percentage of their income. Iowa and New York offer a credit against school taxes on agricultural land. While circuit breaker programs are not widespread, they are receiving increasing attention from state governments looking for ways to relieve farmers’ tax burden. This fact sheet provides basic information about differential assessment and circuit breaker tax programs.

Downloadable Documents: 
Author: 
American Farmland Trust
Publisher: 
Northampton, MA: American Farmland Trust
Page Numbers: 
2
Publication Date: 
August 1, 2006
Literature Category: 
Fact Sheets and Technical Memos