LEGISLATIVE FISCAL ESTIMATE
[First Reprint]
SENATE, No. 3287
STATE OF NEW JERSEY
221st LEGISLATURE
DATED: MAY 23, 2025
SUMMARY
|
Synopsis: |
Provides gross income tax deduction for amounts paid to taxpayers for sale of certain real property interests for conservation purposes. |
|
Type of Impact: |
Annual State revenue loss. |
|
Agencies Affected: |
Department of the Treasury. |
Office of Legislative Services Estimate
|
Fiscal Impact |
FY 2026 and Each FY Thereafter |
|
Annual State Revenue Loss |
Minimum of $300,000 to $500,000 |
|
|
|
· The Office of Legislative Services (OLS) estimates that this bill will result in annual State revenue losses of at least $300,000 to $500,000, due to the provision of a gross income tax deduction for gains realized from the sale of real property interests to qualified conservation organizations.
· The magnitude of the estimated revenue loss is associated with real property sales under the Green Acres and Blue Acres programs, projected participation rates, and applicable tax rates.
· The OLS notes that the actual State revenue loss may be higher than the estimated range, given that the gross income tax deduction authorized under the bill would include the gains realized from certain other property sales.
BILL DESCRIPTION
The bill provides a gross income tax deduction for the consideration received by taxpayers for the sale of real property interests in New Jersey to qualified conservation organizations. The deduction applies to both full market value sales and bargain sales, with the deduction amount equal to the capital gain realized by the taxpayer as determined for federal income tax purposes. For bargain sales, the taxpayer must allocate the property’s cost basis between the gift element and the sale element based on fair market value.
FISCAL ANALYSIS
EXECUTIVE BRANCH
None received.
OFFICE OF LEGISLATIVE SERVICES
The OLS estimates this bill will result in annual State revenue losses of at least $300,000 to $500,000 through reduced gross income tax collections. This estimate is based on an analysis of conservation land purchase data from the State’s Green Acres and Blue Acres programs during fiscal years 2021 through 2024, which shows average annual conservation land purchases of approximately $33.8 million.
The revenue loss calculation assumes that taxable capital gains represent approximately an average 20 percent of sale prices for qualifying transactions, based on typical property appreciation patterns in New Jersey. This rate accounts for development restrictions that may limit appreciation, resulting in estimated annual capital gains of $6.8 million. The OLS applied a blended tax rate of 7.5 percent, considering the various marginal tax rates that would apply across different income levels of potential conservation land sellers. The estimate incorporates a range of likely participation rates, from 60 percent to 90 percent of eligible sellers claiming the deduction. At the low end, assuming a 60 percent participation rate, the annual revenue loss would be approximately $304,500. At the high end, with 90 percent participation, the annual revenue loss would be approximately $456,000.
The magnitude of the estimated revenue loss is associated with real property sales under the Green Acres and Blue Acres programs during the period of fiscal years 2021 through 2024, projected participation rates, and applicable tax rates. During this four-year period, the two programs combined completed 594 transactions totaling $135.2 million, averaging $33.8 million annually, which serves as the baseline for projecting future qualified sales. However, given that the gross income tax deduction authorized under this bill would also include the gains realized from certain other property sales not associated with the Green Acres or Blue Acres programs, the actual State revenue loss may be higher than the estimated range.
The actual revenue loss could vary based on several factors, including future funding levels for conservation programs, property appreciation rates, the proportion of sellers in different tax brackets, and the mix of full market value versus bargain sales. The OLS notes that data constraints prevent more precise estimation due to lack of historical data on actual capital gains realized in conservation land sales, absence of information about the income distribution of typical conservation land sellers, uncertainty about how the new incentive might influence conservation sale decisions, and limited data on the mix of bargain sales versus full market value sales in conservation transactions.
|
Section: |
Revenue, Finance, and Appropriations |
|
Analyst: |
Associate Fiscal Analyst |
|
Approved: |
Thomas Koenig Legislative Budget and Finance Officer |
This legislative fiscal estimate has been produced by the Office of Legislative Services due to the failure of the Executive Branch to respond to our request for a fiscal note.
This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).