Rollback taxes are the recaptured taxes you owe when your property loses its agricultural (ag) valuation or other special use designation. If you've been paying taxes based on the lower agricultural value and then change the land's use, you must pay back the difference between what you paid and what you would have paid at full market value.
In Texas, rollback taxes cover the previous five years plus interest. The bill can be substantial—tens of thousands of dollars—because the difference between ag value and market value is often enormous.
Rollback is triggered by changing the land's use, selling to someone who won't continue agricultural use, or failing to meet the ag exemption requirements.
Rollback taxes are a major consideration when buying or developing agricultural land. Plan accordingly:
When rollback is triggered:
• Land is converted to non-agricultural use
• Property is subdivided for development
• New owner doesn't qualify for ag exemption
• Ag use requirements aren't maintained
When rollback is NOT triggered:
• Sale to someone who continues ag use
• Transfer between family members with continued ag use
• Death of owner (heirs continue ag use)
• Condemnation by government
If you're buying ag land to develop, factor rollback taxes into your purchase calculations. If you're selling, understand who bears this cost.
How rollback taxes are calculated:
Example: 10-acre Texas property
• Market value: $500,000
• Ag value: $1,500 (based on agricultural productivity)
• Annual tax difference: approximately $12,000
Rollback calculation (5 years):
Year 1: $12,000 + 7% interest (4 years) = $15,729
Year 2: $12,000 + 7% interest (3 years) = $14,700
Year 3: $12,000 + 7% interest (2 years) = $13,739
Year 4: $12,000 + 7% interest (1 year) = $12,840
Year 5: $12,000 + 0% interest = $12,000
Total rollback taxes: approximately $69,000
This is in addition to future taxes at full market value.
It's negotiable in the sales contract. Often, the buyer pays since they're changing the use. Sometimes the seller pays or it's split. Get clarity before closing—rollback can be $50,000+ and should be addressed explicitly.
Continue qualifying agricultural use. If selling, find a buyer who will maintain ag status. Some uses like wildlife management can maintain ag valuation even without traditional farming/ranching. Consult with your appraisal district before making changes.
You can protest the calculation if you believe it's wrong, but you can't avoid rollback simply by protesting. If the use changed, rollback applies. However, you can protest the underlying market values used in the calculation.