Be careful of recoupment of reduced taxation of current agricultural use valuation

The Ohio legislature has provided for significantly reduced property tax valuation (and thus, reduced property taxes) for property used for qualifying agricultural purposes.  This is referred to in the Ohio Revised Code as “Current Agricultural Use Valuation” and is shorted as “CAUV.”  This reduction is embodied at O.R.C Section 5713.31.

However, when the owner of property subject to such reduced valuation changes its use from a qualified agricultural use, Ohio Revised Code Sections 5713.34 and .35 provide that the savings for the past three years are to be recouped.  This can be a whopping one-time tax bill!

Further,  the recoupment is a lien against the real estate retroactive to the first of the year in which the change of use occurs.  Thus, when a change of use occurs in conjunction with a transfer of real estate, the buyer and seller need to carefully allocate between themselves the amount of such CAUV recoupment.

Because the seller received the benefit of the reduction; but it is the buyer’s change of use that is causing the CAUV recoupment to become due, it is not always understood between the parties who should bear this expense.

A buyer will be “stuck” with this CAUV recoupment charge as a lien against his property.  It is prudent for parties, Realtors and attorneys to assure the issue is addressed between the parties in the contract and at the closing, to avoid an unpleasant and expensive post-closing surprise.