taxesProperty Tax Assistance

Cap Rate for Special Valuations

Qualified agricultural or open-space and timberland are taxed on productivity rather than market value. The aim is for landowners to realize property tax savings to encourage them to continue to produce vital agricultural products, such as livestock, cotton, timber, milk and corn.

The capitalization rate (cap rate) is one of many factors used by appraisal districts to value agricultural and timberlands. Other factors also affect the final productivity values, including local agricultural trends, income and expense information, property characteristics and the property's agricultural use.

Tax Code Sections 23.53 and 23.74 prescribe the methods for determining the cap rate used to calculate agricultural and timberland values. To determine productivity values, appraisal districts calculate the typical property owner's income generated by the land and subtract certain expenses such as property taxes and the cost of fencing and irrigation wells. The result is commonly known as net-to-land. Appraisal districts divide the average net-to-land for a five-year period by the annual cap rate to arrive at the land's productivity value.

In 2021, appraisal districts must use a cap rate of 10 percent for appraising agricultural or open-space land and a cap rate of 6.96 percent for appraising timberland.