PSI New Jersey Real Estate State Practice Exam

A farmer selling land qualified as farmland will create liability for:

1. Rollback taxes

2. Decreased property value

3. Future zoning issues

4. Environmental assessments

The correct answer is: Rollback taxes

When a farmer sells land that has been classified as farmland, they may trigger liability for rollback taxes. Rollback taxes occur when land that has been receiving special tax treatment due to its agricultural use is sold for a non-agricultural purpose or no longer used for farming. In many jurisdictions, including New Jersey, farmland is often subject to lower property tax rates under use-value assessment laws, which are designed to encourage agricultural use. If the land is sold and its use changes, the local government may levy rollback taxes that encompass the difference between the reduced agricultural tax rate and what the tax would have been under general property tax rates for the preceding years of special classification. This ensures that the farmer pays the back taxes for the benefit they received while holding the land as farmland. While the other options may present concerns related to selling land, they do not generate the specific tax liability that rollback taxes do. This highlights the importance of understanding the tax implications associated with selling farmland to avoid unexpected financial burdens.