Guide to Tax Benefits

In response to citizens’ concerns over the loss of open space in Colorado and throughout the country, both the State of Colorado and the federal government have recently expanded the tax benefits provided to landowners who donate qualified conservation easements.

State of Colorado

Effective January 1, 2015, the Colorado individual conservation easement tax credit formula is 75% of the first $100,000 donated value of the conservation easement and 50% of any remaining donation up to a total credit of $1.5M. This is a significant increase from the previous formula of 50% of the donated value of the conservation easement up to a $375,000 credit.

All landowners utilizing the credit will get up to an additional $25,000 in tax credits to help offset the increased transaction costs. Senate Bill 206 allows a landowner with a larger or high-value parcel of land to earn up to $1.5M in Colorado tax credits in a single year – no more multi-year phased conservation easement processes and all of the related annual expenses. Buyers will be able to purchase the credits they need because more tax credits will be available each year.

Tax credits may be used against the easement donor’s state tax liability and carried forward for up to 20 years from the date of donation. However, taxpayers who do not have the income tax liability to make use of these credits may benefit by selling all or part of their credits to taxpayers with higher tax obligations. These tax credits are transferable and can be sold to other Colorado taxpayers for cash. This creates a win-win situation that allows easement donors to realize cash for their gift while credit buyers facilitate conservation simply by paying their tax obligations to the donor rather than the State of Colorado.

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 income.

Federal Income Tax

In addition to the State of Colorado tax credits, qualified conservation easement donations are eligible for federal tax deductions. According to provisions of the American Tax Payer Relief Act, landowners may deduct up to 50% of their adjusted gross income per year until the entire value of the donation has been deducted. Qualified farmers and ranchers* may deduct up to 100% of their income. In both cases, the deduction may be carried forward for a maximum of 16 years. This enhanced incentive is being renewed annually and retroactively each year. We are working on making this enhanced easement incentive permanent with our senators and representatives in Congress. Please contact EVLT for more information.

Congress has made permanent the enhanced federal tax benefits. For more detail, read here.

* The term ‘qualified farmer or rancher’ means a taxpayer whose gross income from the trade or business of farming (within the meaning of IRS section 10 20321(e)(5)) is greater than 50% of the taxpayer’s gross income for the taxable year.

2013 Enhanced Easement Incentive

This an incentive that enhances the tax benefits of protecting your land by donating a voluntary conservation agreement. If you own land with important natural or historic resources, donating a voluntary conservation agreement can be one of the smartest ways to conserve the land you love, while maintaining your private property rights and possibly realizing significant federal tax benefits. Read more…