Buying land taxed at present-use value? What rollback taxes mean for you

If the land you found is enrolled in North Carolina's present-use value program, the county has been quietly tracking taxes that were put off, not forgiven. When the land leaves the program, for example when it sells to a buyer who won't keep farming it or when a homesite is split off, the deferred taxes for the current year and the three years before generally come due, with interest. The standard North Carolina land contract puts that bill on the seller, but you'll want to know the numbers before you sign.

What is present-use value?

Under state law, qualifying farm, horticultural and forest land is taxed on its value in its current use instead of its market value. The program is a deferral, not a tax break that disappears: counties carry the taxes that were put off in their records as "deferred taxes."

Not every tract qualifies. Wake County says agricultural land needs one tract of at least 10 acres in actual production, and forestland at least 20 acres. Farm and horticultural land must also have averaged at least $1,000 a year in gross income over the three years before January 1.

What happens to the taxes when the land sells?

The deferred taxes come due when the land no longer meets the program's rules. A change of owners doesn't automatically keep the land in the program.

The state's Present-Use Value Program Guide describes an "Exception for Continued Use" for buyers who aren't relatives. It applies only if the land was in the program when title passed, the buyer keeps the same use, the land still meets the size rules, the buyer applies within 60 days, and the buyer accepts liability for the existing deferred taxes. It does not apply if the seller has already filed Form AV-6 asking to leave the program. For a family planning a house rather than a farm, this exception usually won't fit.

"Rollback," the guide notes, isn't the word in the statutes; it has become the common name for this bill. The bill has two parts:

1. The year of disqualification (usually the current year) is taxed as if the land had never been in the program that year.
2. The three years before are due with interest, figured as if each year's tax had been due on its original date.

What if we build a house on part of it?

The bill doesn't wait for the whole tract to change hands. When part of a tract leaves the program, the deferred taxes for that part come due for the current year plus the three years before, with interest. So if you plan to split off a homesite, ask what that piece would cost before you buy, and compare what would be left against the acreage minimums above.

Who pays the rollback bill?

The standard vacant land contract, Form 12-T, says the seller pays "any deferred, discounted or rollback taxes." It also says deferred taxes and liens the buyer hasn't assumed must be paid by the seller before or at settlement. That's the standard form's wording; a real estate attorney can tell you what your own contract says and means for you.

How do we check a parcel before we buy?

Find out where things stand before signing a contract.

• Ask for an estimate. Form AV-7 is the form for asking the county assessor for an estimate of deferred taxes on a parcel.
• Call the county. Wake Tax Administration: 919-856-5400. Chatham County suggests making an appointment, since staff may be out on site visits.