Deferments

One may hear deferments referred to as use value assessment, present use value, or just simply a "tax break". Properly referred to as use value, the term means the value of land in its current use as agricultural land, horticultural land or forestland, and is based solely on its ability to produce income.

There are three basic programs involved:

Agricultural

Agricultural land means land that is a part of a farm unit actively engaged in the commercial production or growing of crops, plants, or animals under a sound management program. Agricultural land includes woodland and wasteland. The requirements for an agricultural deferment are as follows:

  • May consist of more than one tract of agricultural land, but at least one of the tracts must meet the requirements and each tract must be under a sound management program.
  • One tract must consist of at least 10 acres that are in actual production and are not included in a farm unit.
  • Must have produced an average gross income of at least one thousand dollars ($1,000) for the three years preceding January 1 of the year in which this benefit is claimed. Gross income includes income from the sale of the agricultural products produced from the land and any payments received under a governmental soil conservation or land retirement program.
  • If individually owned, the property must be the owner's residence or have been owned by the current owner or a relative of the current owner for four years preceding January 1 of the year in which this benefit is claimed.
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Forestland

Forestland means land that is part of a forest unit that is actively engaged in the commercial growing of trees under a sound management program. Forestland includes wasteland that is part of the forest unit, but the wasteland included in the unit shall be appraised under the use value schedules as wasteland. The requirements for a forestland deferment are as follows:

  • May consist of more than one tract of forestland, but at least one of the tracts must meet the requirements and each tract must be under a sound management program.
  • One tract must consist of at least 20 acres that are in actual production and are not included in a farm unit.
  • If individually owned, the property must be the owner's residence or have been owned by the current owner or a relative of the current owner for four years preceding January 1 of the year in which the benefit is claimed.
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Horticultural

Horticultural land means land that is a part of a horticultural unit that is actively engaged in the commercial production or growing of fruits or vegetables or nursery or floral products under a sound management program. Horticultural land includes woodland and wasteland that is a part of the horticultural unit, but the land included in the unit shall be appraised under the use value schedules as woodland or wasteland. The requirements for a horticultural deferment are as follows:

  • May consist of more than one tract of horticultural land, but at least one of the tracts must meet the requirements and each tract must be under a sound management program.
  • One tract must consist of at least 5 acres that are in actual production.
  • Must have produced an average gross income of at least one thousand dollars ($1,000) for the three years preceding January 1 of the year in which this benefit is claimed. Gross income includes income from the sale of the horticultural products produced from the land and any payments received under a governmental soil conservation or land retirement program.
  • If individually owned, the property must be the owner's residence or have been owned by the current owner or a relative of the current owner for four years preceding January 1 of the year in which the benefit is claimed.

If property loses its eligibility for any reason, deferred taxes become due for the current year plus three previous years, plus interest for all prior years. If only a part of the qualifying tract loses its eligibility, a determination shall be made of the amount of deferred taxes applicable to that part, and that amount shall become payable with interest.

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Historical Property

Historical property is real property designated as a historic structure or site by a local ordinance adopted by the Historical Property Commission. Property that is classified as historical shall be taxed on the basis of fifty percent (50%) of the true appraised value. After property has been designated as historical property, the owner is required to contact the local Tax Assessor's Office for a historical deferment application.

The deferred taxes will not become due unless or until the property loses its eligibility for the benefit of this classification. This could occur because of a change in an ordinance designation or a change in the property which causes its historical significance to be lost or substantially impaired.

If additional information is needed, please contact the Tax Assessor's Office in the county in which you live. These laws apply to all of North Carolina.

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Builder's Inventory

In 2010, the General Assembly enacted G.S. 105-277.1D, which created a deferral for taxes attributable to the construction of new, unsold residential homes. That deferral expired in 2013. Now, however, the exemption is back and stronger than ever. S.L. 2015-223, to be codified as G.S. 105-277.02, expands the now-repealed deferral. Instead of deferring taxes, the new statute excludes them entirely. And the exclusion covers non-structural improvements and commercial properties, neither of which fell within the scope of the old provision.

Builder

The new exclusion applies only to property owners who qualify as “builders.” That term is defined by G.S. 105-273(3a) to mean “a taxpayer engaged in the business of buying real property, making improvements to it, and reselling it.”

Residential Property

S.L. 2015-223 excludes from taxation the increase in property value attributable to:

  • subdivision of a parcel for future residential construction;
  • non-building improvements (grading, streets, utilities, etc.) for future residential con¬struction; and
  • construction of a new single-family home or duplex.

To be eligible, the property must continue to be owned by the builder, must not be occupied by a tenant, and must not be used as a model home or for any other commercial purpose. Because the exclusion is aimed at new construction, renovations to an existing residence cannot qualify. The exclusion is limited to three years from the date the property was first listed by the builder. Remember that all improvements begun in January 1 regardless of the stage of completion. The builder must submit an exclusion application annually under the general application provisions in G.S. 105-282.1.

Commercial Property

Unlike residential property, commercial property may benefit from the new exclusion only for the increase in value attributable to subdivision or non-structural improvements, such as grading, streets, and utilities. Any improvement that requires the issuance of a building permit terminates eligibility for the exclusion.

Another difference between the provisions for residential and commercial property is the maximum length of the exclusion. Commercial property may receive the exclusion for up to five years after the improved property was first listed. The exclusion for residential property is limited to three years.

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