The New Jersey Farmland Assessment Act of 1964 was created with the purpose to preserve land rather than develop it.
This goal is achieved through property tax reductions to those who own farmland or heavily wooded areas. To meet the requirements and qualify for this tax break, the land in question must be a minimum of five acres in size and be used for agricultural, lumbering, horse or sheep farming or other horticultural use for a minimum of two years prior to the year of which the reduced valuation is requested.
It is required that the owner generate at least $500 in gross revenue as a result of the initial five acres of land per year. Additional land must meet less stringent requirements.
Instead of valuing the property at the traditional tax rate for developed property, the land will be assessed relative to its value for farm use. If approved by the local tax assessor, one can save over 90% in paid real estate tax.
One reported example occurred a few years ago when a New Jersey politician took advantage of this property tax loop hole by selling hay from his home in Hunterdon County. Owning a home sitting on a 24.5 acre estate, he allocated 23.5 acres of his land towards “farm use” and paid only $169 in taxes that year for the 23.5 acres of land! However, he was still responsible for over $7,000 in property tax from the first acre of property where his home stood.
Farmland is usually assessed at a value between $500 and $1,500 per acre, marking a drastic difference from the assessed value of developed land. If you own more than five acres of land and are eager to have your property assessed as farm land, keep in mind that to be eligible for this property tax reduction the land must be in active agricultural or horticultural use for at least two years prior.
Therefore, if an owner begins making agricultural use of his land today, he will be eligible for an assessment in the 2013 tax year. However, to qualify, an application for farmland assessment must be filed by August 1 of the pre-tax year.
What makes the New Jersey Farmland Assessment even more attractive is an owner does not actually have to farm the land! The owner can lease the five or more acres of land to a third party farmer who must use the land for a minimum of two consecutive years. This loop hole permits property owners of residential, commercial and industrial land to significantly reduce their property tax.
One legal issue with the Farmland Assessment potentially occurs upon the sale of said property. When purchasing five or more acres of land, one must be careful not to invoke the “roll back” tax. When a property changes its specific use from agricultural to another, or if the land fails to generate the minimum revenue requirements in a given year, the tax assessor will impose an additional tax on the property equal to the difference between the taxes under the farmland assessment and what would have been owed under normal circumstances. The “roll back” tax is applied to the two previous years in addition to the current year, creating a financial burden on the Purchaser of an estate who does not meet the Farmland Assessment requirements.
Consequently, when purchasing a large tract of land, it is essential that the Purchaser’s attorney confirms in writing from the Seller and municipal tax collector whether the property is subject to “roll back” taxes and/or qualifies for continuing the Farmland Assessment.