- Cottonwood Trees at Willow Grove, Lot 39
What are the tax benefits of donating a Conservation Easement?
A landowner who donates a Conservation Easement can benefit in two primary ways: (1) it permanently protects the important conservation qualities of their land without having to give up ownership, and (2) it can create immediate and long-term tax advantages. To be eligible for tax advantages, a Conservation Easement must:
- Be permanent,
- Be donated by the landowner (or subject to a qualified bargain sale),
- Provide one or more conservation value for public benefit
- Diminish the value of the property through the restrictions of the Conservation Easement
The two main tax benefits associated with a donated conservation easement are income tax benefits and estate tax benefits. An independent appraisal of the value of the easement determines the extent of the tax benefits.
A qualified appraiser will evaluate the value of the property before the Conservation Easement restrictions have been put in place (the "before" value); then the appraiser will value the property with the conservation restrictions in place (the "after" value). The difference between the "before" and "after" values is the amount of the charitable contribution for purposes of the donor's tax advantages.
Recent changes have been made to both the State of Colorado and the Federal government's tax regulations, resulting in even greater tax benefits for donated Conservation Easements. These recent changes have been made in response to citizens' concerns over the loss of open space in Colorado and throughout the country. Because of the incentives created by tax benefits, more land with conservation values will be protected in our community.
State of Colorado Conservation Easement Tax Benefits:
The Colorado Conservation Tax Credit was revised in 2007 by House Bill 1354 which replaces the former two-tiered tax credit structure and increases the available credit amount to 50% of the value of the easement donation, up to a maximum tax credit of $375,000 (for a donation valued at $750,000 or higher).
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 the gift of the Conservation Easement on their land.
Federal Income Tax Benefits of Conservation Easements:
In addition to the State of Colorado tax credits, qualified conservation easement donations are eligible for recently expanded federal tax deductions. According to the 2008 Federal Farm Bill, landowners may deduct up to 50% of their Adjusted Gross Income (AGI) per year. Qualifying ranchers and farmers may deduct up to 100% of their AGI.* In both cases, the deduction may be carried forward for a maximum of 16 years. This bill will apply to easements donated in 2008 and 2009, and is slated to expire at the end of 2009.
* 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.
Estate Tax Benefits of Conservation Easements:
Property encumbered by a Conservation Easement has a lower value because of the use restrictions, often meaning that the children could afford to inherit the property without having to sell to pay estate taxes.