"How Do I Keep Green Acres When I Buy Minnesota Farmland? The 30-Day Application and the Deferred Tax Lien"

The fields come right up to the gravel road, a neighbor has rented the cropland for years, and the property tax on all that Minnesota acreage is lower than you expected. Somewhere in the seller's paperwork is a short line saying the land is enrolled in Green Acres. That line is worth a lot to you, and keeping it is up to you once the deed is in your name.

If the Minnesota farmland you are buying is enrolled in Green Acres, the deferment can carry over to you as long as the land, and your ownership of it, still qualify. You keep it by filing an application for continued deferment within 30 days after the sale. If the land later stops qualifying, the deferred tax for the last three years comes due.

I'm Jeff Moran, a mortgage broker in Bluffton, South Carolina, originating since 1996, licensed in fifteen states, including Minnesota, NMLS #483943, through C2 Financial Corporation. A farmland purchase changes the property tax figure your lender works from, so I like to have the Green Acres question answered before you sign the purchase agreement.

How Green Acres works on Minnesota farmland

Green Acres is the name everyone uses for the Agricultural Property Tax law, Minn. Stat. 273.111. It lets enrolled farmland be taxed on what it is worth as a farm, even where the land would sell for more to someone who wants to build on it.

The Minnesota Department of Revenue's Green Acres page explains how it works. The county assessor sets two values on enrolled land: the estimated market value and the agricultural value. The tax is calculated on both, the owner pays the tax on the lower agricultural value, and the difference is deferred until the land is sold or no longer qualifies.

The deferral is not forgiven along the way. The deferred tax is a lien on the property, the same as other property taxes, and it stays with the land.

To qualify, the land has to be classed as agricultural land, which Minnesota calls class 2a. It has to be at least 10 acres, or a nursery or greenhouse, and primarily devoted to agricultural use. The county assessor where the land is located takes the application and decides whether the land qualifies. A first-time application is due by May 1 of the year before the taxes are payable.

The statute also has an ownership test. The land generally has to be the homestead of the owner, or of the owner's surviving spouse, child or sibling, or be farmed together with land that contains that homestead. Land held by the applicant or close family for at least seven years can also qualify, and so can some farms owned through a family farm business. A buyer who will not live on the farm or farm it with a homestead may not meet that test, so please ask the assessor before you count on the deferment.

Minnesota has a sibling program called Rural Preserve, under Minn. Stat. 273.114, for rural vacant land that is part of a farm and borders Green Acres land under the same ownership. The Department of Revenue's page applies the same 30-day rule to both programs when the land changes hands.

What happens to Green Acres when farmland is sold in Minnesota?

A sale is one of the events that can end the deferment, and it does not have to. Subdivision 11a of the statute sets out how the deferment continues under a new owner:

"When real property qualifying under subdivision 3 is sold or transferred, no additional taxes or deferred special assessments plus interest shall be extended against the property provided the property continues to qualify pursuant to subdivision 3, and provided the new owner files an application for continued deferment within 30 days after the sale or transfer."

There are two conditions, and both are about you. The land has to keep qualifying, which mostly depends on how it is used after you buy it. And you, as the new owner, have to file the application. The seller cannot file it for you, and the seller's enrollment does not carry over on its own.

The Department of Revenue's Green Acres page says the same thing: if enrolled land is sold, transferred or subdivided, the new owner must complete a new application within 30 days.

Subdivision 11a also lists transfers that are not treated as a change of ownership at all. They include a death where a surviving owner keeps the property, a divorce where one spouse keeps it, and a marriage where the owner keeps full or partial ownership. Placing the land in a trust can also qualify when the owners who put the land into the trust keep the same interest in it. Those exceptions let a family pass or share the farm without losing the deferment. A purchase from a seller is a change of ownership, and the 30-day clock applies.

Filing for continued deferment, one step at a time

The application goes to the assessor in the county where the land is located. These are the steps, in order.

1. Before you make an offer, please ask the seller or the listing agent whether the land is enrolled in Green Acres or Rural Preserve, and on which parcels. A farm can be several tax parcels, and they are not always enrolled the same way.
2. Please call the county assessor's office before closing and ask for the application for continued deferment, how they want it filed, and what they need with it. Counties handle the paperwork their own way, so the assessor is the right person to tell you.
3. You'll want to confirm with the assessor how the land is being used today and how you plan to use it. If a neighbor rents the cropland and will keep farming it, please let the assessor know, and ask whether your ownership meets the homestead or seven-year test.
4. Please file the application as soon after closing as you can, well inside the 30 days after the sale. It helps to keep a copy with the date you filed it.
5. Once the assessor has it, you can ask the office to confirm the deferment is continuing on every enrolled parcel.

If you will also live on the land, homestead classification is a separate application with its own deadline. Getting homestead classification on a Minnesota home you just bought walks through that one.

The payback if the land stops qualifying

The deferral ends when the land no longer qualifies. That can happen because the use changes, because the land is split or developed, or because nobody filed for continued deferment after a sale. At that point the deferred tax comes due.

Subdivision 9 of the statute limits how far back it reaches. The additional taxes "shall only be levied with respect to the last three years that the said property has been valued and assessed under this section." The Department of Revenue's Green Acres page describes it as the deferred tax for the current year and the two previous years. The statute also says no interest or penalties are added to those taxes if they are paid on time.

Special assessments work a little differently. These are the charges a city or county levies for things like a new road or a sewer line, and enrolled land can defer them too. The Department of Revenue's page says deferred special assessments plus interest have to be paid back once the entire parcel is removed from the program.

The three years are counted on the land, by the years it was valued and assessed under the program. If the land stops qualifying in your first year or two of owning it, some of those years may be years the seller owned it. Please ask your attorney how that would apply to the land you are buying, and whether the purchase agreement should say anything about it.

The Department of Revenue's Green Acres page gives a worked example. A farmer sells enrolled land to a developer who starts building a commercial building. The developer owes the deferred tax for the current year and the two previous years, plus any deferred special assessments with interest, because the whole parcel no longer qualifies.

Green Acres, your property tax and your mortgage

Your lender qualifies you on a property tax figure it can document, and on enrolled farmland that is the tax on the agricultural value.

Continued deferment keeps it that way. If the deferment ends, two things change at once. A one-time payback bill arrives for the deferred years, and the yearly tax moves up to the market-value figure. If your mortgage has an escrow account, the yearly change shows up at the next escrow analysis, and how an escrow account handles taxes and insurance covers how that review works. A one-time payback bill is a different matter, so please ask your servicer, the company you send your mortgage payment to, whether it expects you to pay that bill directly.

The deferred tax lien is something to raise with the title company early. The title commitment is the title company's report on what is recorded against the land before it insures the title. Please ask whether the lien appears on the commitment for the land you are buying, and how they expect to handle it at closing if the deferment continues. The title company is the one insuring the title, so its answer is the one to plan around.

Two other Minnesota closing items run alongside this one. The title company usually files the Certificate of Real Estate Value that Minnesota requires before your deed is recorded, which is a separate filing from the Green Acres application. And Minnesota charges two closing taxes, one on the deed and one on recording the mortgage. Minnesota's deed tax and mortgage registry tax covers who customarily pays each one.

If you are comparing farmland on both sides of the St. Croix, Wisconsin handles it differently. Wisconsin's use-value conversion charge is a one-time charge when the use changes, figured per acre, and it does not hang on a 30-day application after the sale.

Three easy mistakes with Green Acres after closing

The first is assuming the seller's enrollment comes with the deed. It continues only when you file for it, and the statute gives you 30 days after the sale.

The second is treating the deferred tax as gone. It stays a lien on the land, and it comes due the day the land stops qualifying, whoever owns it then.

The third is changing how the land is used before talking to the assessor. A plan for part of the acreage can affect whether the land still qualifies, and the assessor can tell you before you commit to it.

An example with made-up numbers

The numbers below are made up to show how the payback works. They are not a real property, a real county's figures or an estimate for any parcel.

Say you buy eighty acres of enrolled cropland with the farmhouse, move in, and keep farming it. You file for continued deferment with the county assessor two weeks after closing, the assessor approves it, and nothing is due. The deferral keeps going under your name.

Now say the application was never filed, and the land no longer qualifies after the sale. The deferred tax for the three years comes due:

Deferred tax, two years ago           $2,150
Deferred tax, last year               $2,280
Deferred tax, current year            $2,410
                                     -------
Payback                               $6,840

If the whole parcel left the program with deferred special assessments on it, those would be added with interest.

Your next step

If you are looking at Minnesota farmland, a Minnesota pre-approval is what stands behind your offer. The Minnesota mortgage page covers how closings work in Minnesota, from the title company's role to the closing taxes. You can also see pricing for a home purchase on your own, with no credit pull. Choose a rate option that works best for you, and know that the selection can change as the file comes together. If you would rather talk through the land, the Green Acres application and your tax figure before you make an offer, you are welcome to call me.

Nothing here is a loan approval, a denial or a commitment to lend, and it is not tax or legal advice. The county assessor decides whether land qualifies for Green Acres, so please confirm the details for your parcels with the assessor's office.

Common questions

Do I have to reapply for Green Acres when I buy Minnesota farmland?

Yes. Under Minn. Stat. 273.111, subdivision 11a, the deferment continues after a sale only if the land still qualifies and the new owner files an application for continued deferment within 30 days after the sale. The seller's enrollment does not carry over to you on its own.

How long do I have to file for continued deferment in Minnesota?

Thirty days after the sale or transfer. The application goes to the county assessor where the land is located. The Department of Revenue's Green Acres page describes the same 30-day window.

Who pays the Green Acres payback when farmland is sold?

The owner when the land stops qualifying. If you file on time and the land keeps qualifying, nothing is due at the sale. If no application is filed or the land no longer qualifies after the change in ownership, the Department of Revenue says the owner must pay back the deferred taxes.

How many years of deferred tax are paid back under Green Acres?

Three. The statute limits the additional taxes to the last three years the property was valued and assessed under the program, and the Department of Revenue describes that as the current year and the two previous years. Deferred special assessments with interest are also due once the entire parcel leaves the program.

Is the Green Acres deferred tax a lien on the property?

Yes. The deferred tax is a lien on the property, the same as other property taxes. It stays with the land when it is sold, so it is worth asking the title company how it shows up for the land you are buying.

Does a transfer to a spouse after a death end Green Acres?

No. The statute does not treat a death where a surviving owner keeps the property as a change of ownership. It treats certain divorces, marriages and trust transfers the same way.