General Qualifications for Open Space Special Evaluation

The Texas Constitution permits special agricultural appraisal only if land and its owner meet specific requirements defining farm and ranch use. Land will not qualify simply because it is rural and has some connection with agricultural. Casual uses such as home vegetable gardens, hobby farming and ranching, or incidental cutting and baling of hay do not really constitute a qualifying agriculture use.

The following guidelines have been developed by Wharton County Central Appraisal District based on what is typical to this area:

  1. The land must be currently devoted principally to agricultural use and the principal use of the land for five (5) of the last seven (7) years must have been agricultural.
  2. Agricultural use of a property must be recognizable with the property maintained in a manner that would indicate prudent management.
  3. The land must be utilized to the degree of intensity that is generally accepted in Wharton County.
  4. It must be a substantial tract of land that is adequate to support a typically prudent operation and be of a useable management size for the activity involved.
  5. The land must be producing an agricultural product intended for sale including but not limited to: livestock, crops for human or animal food, seed or fiber crops, etc.
  6. Operator may be asked to provide documentation of management practices, expenses and sales, if necessary. For example – feed/fertilizer invoices, equipment invoices, sales receipts, labor expenses, IRS Schedule F.
  7. Operator may be asked to show evidence that he is not engaged in a hobby according to the guidelines set out in Reference Section 183 of the I.R.S. Regulations. ( See Attached)

These guidelines are used as a general guide for qualifying land. There may be circumstances in your agricultural operation, which allow it to qualify based upon its own merit. Very rare exceptions to the general rule will be handled on a case by case basis.

Internal Revenue Service “Hobby” Farm Guidelines
Reference section 183 of the I.R.S. regulations
  1. Manner in which the taxpayer carries on the activity. Does the taxpayer go about the activity in a business-like fashion keeping books and records, and does he operate as similar businesses are operated?
  2. The expertise of the taxpayer or his advisors. Where the taxpayer has no expertise, does he seek it, and does he follow the advice once found?
  3. The time and effort expended by the taxpayer in carrying on the activity. Are either the efforts of the taxpayer or his qualified assistants consistent with the size of the investment and a profit motive?
  4. Expectation that assets use in activity may appreciate in value. Lack of current income may be offset by the possibility of asset appreciation.
  5. The success of the taxpayer in carrying on other similar or dissimilar activities. A long uninterrupted history of losses will be harmful, but the presumption noted above will operate if the taxpayer has a profit in two years out of five ( or seven) .
  6. The taxpayer’s history of income or losses with respect to the activity.
  7. The amount of occasional profits, if any, which are earned. If profits are generated, their size in relation to prior or later losses will be considered.
  8. The financial status of the taxpayer. If the taxpayer has sufficient wealth to suffer losses, that indicates a non-profit motive.
  9. Elements or personal pleasure or recreation. If the taxpayer has personal motives or engages in the activity for recreational purposes, his overall profit motives will be suspect.

* Exemption Department should disregard. Not applicable under the Texas State Property Tax Code Guidelines. This shows that even the IRS has trouble in identifying actual farming endeavors or just “write-offs”.