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. For a summary of the typical, significant tax benefits, click here.
State of Colorado
Effective January 1, 2020, the Colorado individual conservation easement tax credit formula is 90% of the donated value of the conservation easement up to a total credit of $5M. 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 was being renewed annually and retroactively each year but in 2015, Congress has made permanent the enhanced federal tax benefits. For more detail, read here.
This 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.
* 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.
DISCLAIMER: The information described herein does not constitute legal advice or opinion in any way and EVLT does not guarantee the accuracy of the information contained herein. Landowners should consult qualified independent professionals to obtain legal, financial and tax advice before concluding that a donation of a CE would be eligible for tax benefits. EVLT will not knowingly participate in a project where it has significant concerns about the appraisal or eligibility of the CE to meet the requirements of applicable federal or state regulations. Even if EVLT accepts a donated CE and agrees in writing to recognize donation value, EVLT expressly does not guarantee, and makes no representations implied or otherwise, on legal or financial (including tax, estate, or real estate) matters, or that the transaction has donation value, or that the donation will receive tax benefits.