Montana’s property tax system is extremely complex, with many mind-boggling calculations and perplexing rules. The point of this maze is to distribute the costs of public services like schools and police fairly among hundreds of thousands of institutions.
Of course, it’s a difficult task to agree on what exactly fairness means when it comes to taxes, but it’s an even harder task for lawmakers to write tax laws that implement a fair framework without loopholes. On January 6, High Country News and the Montana Free Press reported on an aspect of the state’s tax code that has been a concern in Montana politics for decades: property tax breaks for farms and ranches. published a long-term study on whether it is being abused by people. People who own luxury homes in rural areas.
Our stories are over 3,400 words long. The full study includes many intricacies, nuances, and infographics, but here are some key takeaways.
Agricultural tax status discounts farm and ranch properties compared to residential properties by lowering the value of the underlying land.
If you own a home in Montana in an urban or suburban neighborhood, it will almost certainly be classified as residential property. In these cases, both the home structure and the property underneath are valued and taxed based on market value, or how much the Montana Department of Revenue thinks it could sell for.
Agricultural ground structures are also valued and taxed based on market value, but the underlying land is not. Instead, farmland is valued for tax purposes based on its production value, or how much income the Department of Revenue believes the owner will earn by growing crops or grazing livestock.
It makes a big difference. Although residential land values vary by location across Montana, the average residential land value was approximately $127,000 in 2023. The production value of agricultural land is much lower. For example, some of the properties we looked at had grazing land valued at less than $50 per acre.
Agricultural discounts can save you hundreds or thousands of dollars in taxes each year.
One example we considered was a property on the Flathead River near Kalispell, which the Zillow listing described as a “gorgeous Montana river estate” with a putting green and orchard. According to our analysis, this 10-acre property, which is classified as agricultural land, paid approximately $7,000 in property taxes in 2023, all but $20 of which was based on the value of the property’s structures. It’s paid for.
The 10-acre residential property next door paid about $9,100 in taxes in 2023, including about $3,300 in land taxes, including a slightly less valuable home.
Such disparities are typical. For parcels smaller than 20 acres, we found that residential land paid a median effective land tax of $1,609 per acre in 2023, while agricultural land paid just $6.61.
Critics worry that it is too easy for luxury real estate to qualify for agricultural tax breaks.
Unlike most Western states, large properties in Montana do not have to prove that the land is used for agriculture and automatically qualify for agricultural tax benefits. Properties with 160 acres or more automatically have a full agricultural designation, while properties with 20 acres or more automatically have a partial agricultural designation, which depends on whether the owner can demonstrate farm or ranch activity. Regardless, you will receive a slightly reduced tax benefit.
Small properties can qualify for full designation by reporting at least $1,500 in annual agricultural income. Critics argue that this threshold, which has not been updated since 1986, is low enough that knowledgeable property owners can reach it with relatively little effort.
Thousands of dollars worth of homes in Montana are benefiting from the farm tax system. Gov. Greg Gianforte’s Bozeman mansion is one of them.
HCN and MTFP examined state property data for 2023 and found that there are more than 3,000 properties with a structural value of $1 million that qualify for full or partial agricultural tax incentives. In some cases, as in the Flathead River example, these properties are adjacent to otherwise comparable residential properties, resulting in significant tax disparities.
Another example is Gianforte’s home on an 11-acre parcel designated for agriculture outside Bozeman. According to our calculations, the governor and his wife Susan paid about $5.75 per acre in land taxes in 2023, while their neighbors with residential properties across the street paid $826 per acre. (According to the governor’s office, Gianfortes’ property also includes additional parcels, which are used for barley and alfalfa production, as well as horse and mule riding.)
The $66 land tax the governor charges for this 11-acre property is significantly less than the majority of Montana’s urban homeowners pay each year for their property.
Lawmakers could change the tax code in the Montana Legislature this year.
When the session began in early January, two bills were being debated: one to tighten eligibility criteria for agricultural designations (House Bill 27) and one to increase taxes on the residential portion of high-value agricultural properties (Senate Bill 4). was.
Similar measures have faced difficulties in the past due to opposition from citizens facing tax increases. Sponsors of both bills told HCN and MTFP last week that they were working on amending their proposals to make them politically viable.
Read our full study: Montana farm tax rules could reduce home bills by thousands of dollars.
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