Purdue Extension - Changes in Farmland Property Tax Assessment: How should Indiana assess farmland for property taxes? Good question. There’s the way we used to do it, the way we do it now and, if new legislation passes, the way we’ll do it in the future.
We used to assess farmland based on a capitalization formula. Imagine an investor taking money out of a bank to buy some farmland. Suppose the investor earns 5 percent interest at the bank, and the land can earn $100 a year from growing crops. The investor bids $1,000 for the acre. If that’s the winning bid, the investor earns 10 percent on that $1,000. That’s better than the bank rate. Suppose the bidding continues to $2,000. At that price the land yields a 5 percent return, the same as at the bank. But if the bidding continues above $2,000, that $100 income from the land represents a return less than the bank’s 5 percent. A rational investor would stop bidding at $2,000.