“Conservation will ultimately boil down to rewarding the private landowner who conserves the public interest.” – Aldo Leopold
Landowners who donate all or a portion of a conservation easement (CE) to a qualified organization may be eligible for valuable federal and state tax benefits. The Colorado state and federal governments each provide tax incentives for landowners who designate their land as a conservation easement, foregoing certain use rights in order to preserve the land in perpetuity. Below is some information on the state and federal tax incentives that may apply to you donation.
The State of Colorado leads the nation in providing a transferable income tax credit for donated conservation easements as a powerful incentive for private land conservation. Qualifying donations may earn a state conservation easement tax credit worth 75% of the first $100,000 of easement donation value, and 50% of the remaining donation value up to a maximum tax credit of $1.5 million. To be eligible for a tax credit, the holder organization must be certified and the easement donation and transaction approved by the Colorado Division of Conservation. Tax credits may be used against the donor’s state tax liability within a 20-year carry forward period, or transferred to another taxpayer. Donors may claim no more than one Colorado conservation tax credit per year.
Taxpayers without enough income tax liability to make use of these credits may benefit by selling all or part of their credits to other Colorado taxpayers. Rates vary but landowners can generally expect to sell a credit for ~85% of its value. Brokers around the state will help facilitate credit sales year-round. Tax credits can be transferred up until April 15 for use against the previous year’s tax bill.
The Federal conservation easement tax incentive allows taxpayers to claim an income tax deduction for the charitable donation of qualifying CEs. An income tax deduction reduces the amount of income that is taxed, thereby reducing the amount of tax owed. The federal CE tax incentive allows you to deduct the full value of your qualified CE donation, minus the amount of state tax credits claimed. You can deduct up to 50% of your Adjusted Gross Income per year for up to 16 years, including the year of donation, until your donation value (less the amount of state tax credits claimed under proposed IRS rules) is used. Qualified farmers and ranchers can deduct 100% of their income per year over the same period. Please consult with your tax advisor for details.
Estate Tax incentives may apply by extinguishing some or all of the development rights on your property through a conservation easement. This could provide a substantial benefit for passing your land on to your family. In addition, land protected by a qualified CE is eligible for an estate tax exclusion of up to 40% of value of the encumbered land up to the maximum cap of $500,000 and excluding any improvements on your land. Certain restrictions apply so chat with your tax adviser on the specifics related to your donation.
This information is provided as a general description of tax incentives available for qualified conservation easement donations. Persons interested in pursuing a conservation easement or purchasing Colorado tax credits should seek professional tax and legal advice. Please note that the sale of Colorado conservation credits creates taxable capital gains income.