How to Qualify for Farm Tax Exemption in Indiana

To qualify for a farm tax exemption in Indiana, you need to know that the state offers two separate benefits with two separate tests. Farmland is assessed at its agricultural use-value rather than market value under Indiana Code 6-1.1-4-13, which requires that the land be genuinely devoted to agricultural use. Farm equipment is exempt from state sales tax under IC 6-2.5-5-2, which you claim by presenting Form ST-105 to the vendor at purchase. Neither benefit is automatic, and both have rules that catch landowners off guard.

What Counts as Agricultural Use

The property tax benefit turns on a single question: is the land “devoted to agricultural use”? Indiana reads that phrase broadly. Qualifying uses include crop production, livestock and livestock products, poultry, dairy, commercial aquaculture, horses, fruit, vegetables, forage, grains, timber, nursery stock, bees, and tobacco. Fallow land counts. So does land enrolled in USDA conservation reserve programs, Farm Service Agency conservation programs, or the Indiana Department of Natural Resources classified forest and wildlands program.¹

Two features of the test surprise landowners. First, there is no minimum acreage. The statute explicitly says agricultural use “may not be determined by the size of a parcel.” A five-acre produce operation qualifies on the same footing as a 2,000-acre grain farm, provided each is genuinely producing.¹ Second, farming doesn’t have to be your primary income. A landowner with an off-farm job who actively works the ground still gets the agricultural assessment. The statute looks at what the land does, not what the owner does for a living.

What won’t qualify: land that functions as a personal retreat with no real agricultural activity, regardless of how the parcel is zoned or what it looks like on a plat map.

How the Property Tax Benefit Works

Indiana doesn’t offer a blanket exemption. Instead, it values farmland based on what the land produces. The Department of Local Government Finance sets an annual base rate per acre; for 2026, that rate is $2,390.¹ County assessors then apply soil productivity factors from USDA soil survey data, ranging from about 0.50 for poor ground to 1.28 for the best soil. Prime cropland is assessed higher per acre than marginal ground, but both are valued far below what a developer would pay for the same site near a growing town.

Agricultural land also sits inside Indiana’s 2% property tax cap. Homesteads cap at 1% of assessed value; commercial property at 3%; farmland at 2%. If your calculated bill exceeds 2% of assessed value, the excess is automatically reduced.²

Claiming the Sales Tax Exemption on Equipment

Indiana exempts agricultural equipment from state sales tax under IC 6-2.5-5-2. The exemption covers machinery, tools, and equipment used directly in producing, extracting, harvesting, or processing agricultural commodities. Tractors, combines, grain dryers, irrigation systems, and equipment for gathering or spreading animal waste all fall inside it.³

You claim it at the register. Present a completed Form ST-105, the General Sales Tax Exemption Certificate, to the vendor. Farmers without a state business license number can use their Social Security number or federal ID number.⁴ For equipment that isn’t used exclusively for farming, you also complete Form AGQ-100, the Agricultural Equipment Exemption Usage Questionnaire, which determines how much of the purchase qualifies.

The rules are more forgiving than many farmers assume. If a piece of equipment is “predominantly” used for exempt agricultural purposes, the entire purchase is exempt even when you sometimes use it for something else. If it isn’t predominantly agricultural, the tax is prorated based on the non-exempt use rather than disqualifying the purchase.³

Activities That Can Disqualify Your Land

Adding non-farming activities to a farm can pull acreage out of agricultural assessment and cost you exemption eligibility on related purchases. Gift shops, event venues, restaurants, and amusement activities are generally not farming for Indiana tax purposes. If a portion of your ground becomes a wedding venue, that acreage may be reassessed at market value.

The line isn’t always intuitive. A roadside stand selling your own produce is farming. A stand that primarily sells produce grown by others is not. Processing raw commodities into finished goods, such as turning grapes into wine, crosses into commercial territory. Those activities get reported on Schedule C rather than Schedule F, and property tax and sales tax exemptions apply only to the farm portion of the operation.

If you’re expanding into agritourism, keep clean separation. Distinct areas on the property, separate accounting records, and a conversation with your county assessor before you start selling tickets will keep the non-farm side from pulling your farmland into a higher assessment category.

The IRS Hobby Loss Rule Is a Separate Test

Indiana’s agricultural assessment says nothing about your federal income taxes. The IRS applies its own test to decide whether your farming is a business or a hobby, and if it lands on hobby, you lose the ability to deduct farm losses against other income.

The general presumption is that farming is a business if it turned a profit in at least three of the last five tax years. For horse breeding, training, showing, or racing, the standard is two profitable years out of seven.⁵ Missing the threshold doesn’t automatically make your operation a hobby; the IRS weighs nine factors, including businesslike recordkeeping, whether you’ve changed methods to improve profitability, the time you invest, and whether you depend on the income. But the profit test is where audits start, so if you’ve been running losses several years in a row, document your profit motive carefully.

Penalties for Getting It Wrong

If farmland is reclassified and back taxes are owed, Indiana adds interest from the original due date plus a penalty. Paying within 30 days of the due date triggers a 5% penalty. After 30 days, or if you already have delinquent taxes from a prior period, the penalty rises to 10%, with an additional 10% added for each subsequent year the taxes remain unpaid.⁶

Filing a false return or making false statements with intent to evade tax is a Level 6 felony in Indiana. Recklessly obstructing a tax investigation or knowingly refusing to produce records is a Class B misdemeanor, elevated to a Level 6 felony where there’s intent to defraud.⁷ Misrepresenting land use to keep a lower assessment can trigger both back taxes with penalties and criminal charges.

If You Disagree With Your Assessment

You can challenge how your land is classified or valued. Start with Form 130, the Taxpayer’s Notice to Initiate an Appeal, filed with your local assessing official. The deadline is June 15 if the notice of assessment was mailed before May 1 of the assessment year, or June 15 of the year taxes are due if the notice went out on or after May 1.⁸

After you file, the local assessor schedules an informal conference. If that doesn’t resolve the issue, the appeal moves to the county Property Tax Assessment Board of Appeals for a formal hearing, and from there to the Indiana Board of Tax Review and, if necessary, the Indiana Tax Court.⁹ The full process can take more than a year, so put your evidence together at the first filing rather than waiting to build a case on appeal.

1
Indiana General Assembly. Indiana Code 6-1.1-4-13 – Agricultural Land Assessment Soil Productivity Factors
2
DLGF. Tax Bill 101
3
Indiana General Assembly. Indiana Code Title 6 Taxation 6-2.5-5-2
4
IN.gov. General Sales Tax Exemption Certificate Form ST-105
5
IRS. Is Your Hobby a For-Profit Endeavor
6
Indiana General Assembly. Indiana Code 6-1.1-37-10 – Penalties for Delinquent Taxes Amount Application of Amounts Paid When Payments Considered to Be Made Initial Penalty Period
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Indiana General Assembly. Indiana Code 6-8-1-24 – Evasion of Tax Offenses
8
DLGF. Appeals Property Tax
9
DLGF. Procedure for Appeal of Assessment