Rollback taxes are taxes that are imposed when the value of property decreases. The definition of rollback refers to the fact that the tax rate is rolled back to the previous year's rate. This results in a higher tax bill for the property owner. It may also occur when the use of a property is changed by the property owner. Rollback taxes also come into play when a property is changed from agricultural to nonagricultural use, according to the Western Upstate Association of Realtors.
When Are Rollback Taxes Paid?
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Rollback taxes are most commonly found in states where property values have decreased significantly. For example, many states impose rollback taxes after a housing market crash. This helps to ensure that property owners do not avoid paying their fair share of taxes by selling their property at a lower price.
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Some states require all property owners to pay rollback taxes, while others only require those who sell their property to pay them. In most cases, rollback taxes must be paid within a certain time frame, such as within one year of the sale of the property.
If you are considering selling your property, it is important to be aware of any rollback taxes that may apply in your state. These taxes can add a significant amount to the cost of selling your home, so it is important to factor them into your planning.
Which States Have Rollback Taxes?
Once you know what rollback means, it's important to determine if it applies to you. Many states have rollback taxes, but they are most commonly found in the following states:
- Alabama
- Arkansas
- Florida
- Georgia
- Iowa
- Louisiana
- Mississippi
- North Carolina
- Oklahoma
- South Carolina
- Tennessee
- Texas
Rollback taxes can be applied in any state at any time, so it's important to check with your attorney, real estate agent and state tax code before planning a sale of your home.
Some states, like Virginia, define rollback taxes as the difference between the land use value assessment and the fair market value assessment on a piece of property. According to Franklin County, this can be for up to six years, and you might have to also pay simple interest per year on the total amount. It's important to note that in this case, the rollback taxes are assessed against the person who changed the function of the land to be a nonqualifying use.
When Do Rollback Taxes Apply?
Rollback taxes generally apply when the value of a property decreases. In most cases, they are imposed when a property is sold for less than its appraised value. They may also come into play when the use of the land is changed from agricultural to nonagricultural. However, some states also require rollback taxes to be paid when property is inherited or transferred to another owner.
Rollback taxes are typically imposed at the time of sale, but in some cases, they may be due later. For example, if you sell your property and the buyer does not pay the required taxes, you may be responsible for paying them yourself.
According to JD Supra, in 2021, the agricultural rollback tax law changed, and now those taxes are due on the year the change was made and the three previous years. This is different from in the past, when rollback taxes could be collected on the preceding five years. It is important to check with your state's tax authority to determine when rollback taxes are due. This will help you to avoid penalties and interest.