Selling or Buying Farmland? Make Sure You Understand the Agricultural Use Assessment

Updated: Jul 23, 2020

By Sarah Everhart

Horses grazing a field (Photo by Edwin Remsberg).
Horses grazing a field (Photo by Edwin Remsberg).

The Agricultural Use Assessment is a reduced property tax assessment granted to either farmland or woodlands. The application of the assessment means that the land is appraised according to its current agricultural use and not according to its actual market value, which is often significantly higher. The assessment was enacted by Maryland in 1960 and was the first of its kind in the country. The purpose of the assessment is to give the landowner a property tax benefit to encourage keeping the land in either agriculture or forest as opposed to converting the land for development. Sellers and buyers of farmland need to understand the Agricultural Use Assessment so they can both enjoy the financial benefits and be aware of the potential associated tax liabilities and penalties.

For farmland to be eligible for the assessment, the land must be “actively used” for agricultural purposes. The State Department of Assessments and Taxation (SDAT) administers the assessment and determines whether farmland is actively used. To make the determination, SDAT considers the nature of the agricultural activity such as whether the land is tilled or is pasture, whether the agricultural activity is generally recognized by the agricultural community, whether the agricultural activity is the primary use of the land, and whether the agricultural use is continuing or temporary. If there is doubt as to whether land is being actively used for agriculture, a farmer can show SDAT that their agricultural activity results in an average annual gross income of $2,500 or more annually. The assessment generally cannot be used for small parcels of land. Specifically, farmland parcels must be larger than three acres unless certain criteria are met, and woodland parcels must be 5 acres to qualify. Residential uses such as farm houses and tenant houses are excluded from the assessment area and assessed at a residential property tax rate.

The assessment can be applied to woodlands if the woodland is associated with a farm or if it is a separate tract of woodland. In order for separate tracts of woodlands to qualify for the assessment, the landowner must obtain a forest management plan for the woodland approved by the Department of Natural Resources. To receive the assessment, the landowner must file a letter of intent with the local SDAT office. The letter of intent is a legal agreement in which the landowner agrees to keep the land in agricultural use for at least 5 years and to inform SDAT if there is a change in use.

What happens if a farmer has the assessment and decides to sell the land to a purchaser who will develop the land in whole or in part? In the event of a transfer, a