Protection From the Pop-Up Tax
Michigan Public Act 260 of 2000 shields qualified farm property from substantial increases in property taxes or “pop-up taxes” when farmland is transferred, thus helping farms remain in agriculture.
Without this act, when agricultural land transferred by sale or inheritance the land assessment typically rose significantly as a reflection of the property’s potential development rather than agricultural value. The increase in property taxes made it difficult for farmers, particularly young farmers, to keep land in agriculture.
Public Act 260
PA 260 protects the taxable value on farmland from rising to the State Equalized Value (SEV) when farm property is transferred, so long as the land remains an agricultural use.
Currently, annual assessment increases on each parcel of property (adjusted for additions and losses) are limited to the lesser of 5 percent or the rate of inflation. When property is transferred, the assessed value reverts to 50 percent of the SEV.
Taxable Value and SEV
Each parcel has two values: the taxable value, which reflects the parcel’s capped value and is the basis upon which taxes are levied; and the SEV, which is the true cash value.
So in an area where the value of property rises faster than the rate of inflation or 5 percent per year, a parcel’s taxable value will be lower than its SEV, and this discrepancy will grow larger each year.
When the property is transferred, the new owner must pay taxes based upon the property’s SEV unless the property qualifies for protection from the pop-up. At this point, the taxable value is again capped at the rate of inflation or 5 percent.
Frequently Asked Questions
PA 260 is significant for farms where the land is transferred to the next generation. In the past, this generational transfer would often trigger the “pop-up” of property tax assessments from the taxable value to the SEV. Benefits are available to land buyers, not just family members, who are willing to sign an affidavit that guarantees the land will remain in agriculture.
The law includes any transfers recorded after Dec. 31, 1999.
Upon the sale of the property, the buyer must sign an affidavit (prescribed by the Michigan Department of Treasury), stating that the land will remain in agriculture for a minimum of seven years. A copy of the affidavit must be sent to the county Register of Deeds and to the local assessor. The owner is required to repay tax benefits received for all or a portion of the seven years, depending on when the property is developed, as required in the Agricultural Property Recapture Act (Public Act 261 of 2000).
If there is a signed affidavit on file and the land is converted to a use other than agriculture, the benefits are calculated based on the difference between the taxable value and the SEV multiplied by the actual millage rate for that property for up to a maximum of seven years.
The previous seven years tax benefit is due when a change in land use occurs. Funds repaid would be submitted to the state treasury. The funds would be deposited in the Agricultural Preservation Fund (PA 262) and used for the purchase of development rights of farmland.
Farmland Preservation Tax Credits
Michigan’s Farmland and Open Space Preservation program (PA 116) preserves farmland and open spaces and offers tax relief to farmers who voluntarily participate in temporary farmland preservation agreements. Visit our Farmland Preservation page to learn more.