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Module 9a: State Regulations That Affect Farm Value

Regulations issued by the State of New Jersey could have an impact on your financial security in retirement. Specific examples include farmland assessment and state government laws and programs such as Pinelands, Highlands, and Farmland Preservation. These regulations can affect the value of your farmland or land that may be transferred to you.

Farmland Assessment

Farmland assessment by itself is not a major issue except for the fact that, if it were to lapse under the existing format for tax benefits, then the current land owner could be subject to additional tax payments through roll back or other penalties. Farmland assessment law results in tax reductions by assessing their land's value for agricultural production rather than potential development value. Any change in land use which results in a different assessment may change the tax implications for the property.

The New Jersey Farmland Assessment Act of 1964 permits farmland and woodlands actively devoted to an agricultural or horticultural use to be assessed at their agricultural or horticultural productivity value. The Act does not apply to the farmhouse and homesite which are assessed like all other non-farm property. When and if the land qualified under the Act changes to a non-agricultural or non-horticultural use, including being idle, it is subject to a rollback tax.

The basic eligibility requirements for farmland preservation benefits include:

  1. Applicant must own the land.
  2. Owner must annually apply for farmland assessment on Form FA-1 with the municipal tax assessor on or before August 1 of the year immediately preceding the tax year.
  3. Land must be devoted to agricultural and/or horticultural uses for at least two years prior to the tax year.
  4. Land must consist of at least 5 contiguous (adjoining) acres being farmed and/or under a woodlot management plan.
  5. Gross sales of products from the land must average at least $1,000 per year for the first 5 acres, plus an average of $5 per acre for each acre over 5, except in the case of woodland or wetland where the income requirement is $0.50 per acre for any acreage over 5; or there is clear evidence of anticipated yearly gross sales, payments, or fees within a reasonable period of time dependent on the agricultural or horticultural products being produced.

Regulations under Pinelands and, more recently, Highlands legislation could have income and estate tax implications in the event of a land transfer and/or inheritance. Both acts can also impact the overall value of property depending on the physical location within the designated boundaries which may limit the development potential of the property and may increase the acreage requirements for septic systems.

Highlands Legislation

Activities regulated under Highlands Act include:

  1. Any non-residential development in the preservation area.
  2. Any residential development in the preservation area that requires an environmental land use or water permit or that results in the ultimate disturbance of one acre or more of land or a cumulative increase in impervious surface by one-quarter acre or more.
  3. Any activity undertaken or engaged in the preservation area that is not a development but results in the ultimate disturbance of one-quarter acre or more of forested area or that results in a cumulative increase in impervious surface by one-quarter acre or more on a lot.
  4. Any capital or other project of a State entity or local government unit in the preservation area that requires an environmental land use or water permit or that results in the ultimate disturbance of one acre or more of land or a cumulative increase in impervious surface by one-quarter acre or more. Major Highlands development shall not mean an agricultural or horticultural development or agricultural or horticultural use in the preservation area.

Pinelands Legislation

The Pinelands Comprehensive Management Plan (CMP) contains the regulations that implement the Pinelands Protection Act.

The Pinelands CMP divides the Pinelands region into nine land management areas. These land management areas are comparable to very large municipal zoning districts. As with municipal zoning anywhere in the State of New Jersey, the land management areas can impact the value of a farm by limiting its development potential. Some land management areas with limited development potential are listed below.

  1. Pinelands Preservation area: Residential and commercial development is limited in this Pinelands Preservation Area. One exception is dwellings for extended family members on at least one acre provided the lands have been owned by the family since 1979.
  2. Pinelands Agricultural Production Areas: Residential development in Agricultural Production areas is limited to farm owners and employees at a density of one home for every 10 acres. New, non-farm related housing is limited to one home for every 40 acres. Dwellings for extended family members are permitted on at least one acre provided the lands have been owned by the family since 1979.
  3. Pinelands Development Credits (PDCs) are allocated to lands in both the Pinelands Preservation Area and Pinelands Agricultural Production Areas. PDCs are transferrable development rights that can be sold to allow additional dwelling units to be developed on lands in the growth-oriented land management areas of the Pinelands.

Farmland Preservation

Regulations under Farmland Preservation can restrict property value more so than the Pinelands and Highlands acts since the development value has been sold off under the act, leaving the land owner with only the farmland value of the property. Included in this act are other restrictive concerns that new land owners need to be aware of before they take possession of the property. Since the land is preserved exclusively as farmland, it cannot be developed for anything other than agriculture.

Since many farmers use the value of their farms to fund retirement, careful consideration must be made when participating in the Farmland Preservation program. Some important considerations include capital gains taxes, the resale value of property, and financial management of funds secured through development easement sale. Unfortunately, cases have occurred where Farmland Preservation program payments were spent quickly, leaving farmers with neither the cash payment nor access to the development value of their land.

Resources

For additional information about New Jersey agricultural regulations that can affect retirement planning decisions, visit the following websites: