- 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.
In order to be eligible for the Colorado Conservation Tax Credit, the conservation easement must be donated to a Certified land trust. The State of Colorado implemented the Certification program in 2009 to ensure that all conservation transactions for which a tax credit is taken provide benefit to the People of Colorado through protection of scenic views, agricultural and ranching lands, wildlife habitat and other conservation values. Continental Divide Land Trust is a Certified land trust, Certificate number CE0026.
In 2010, changes were made to the Colorado Conservation Tax Credit program. Starting with tax year 2011 (and effective through 2013), HB10-1197 caps the total amount of credits that will be granted in any one year to $26 million, with a total cap for the three years at $78 million. This will likely create a back-log of tax credit requests, so a wait-list will be implemented. For example, if a landowner donates a conservation easement in November 2011, but the credits for tax year 2011 have already been allocated, the landowner’s tax credit will be issued in 2012. It is possible that the full $78 million could be allotted well before the end of 2013 due to wait-list back ups.
Federal Income Tax Benefits of Conservation Easements:
In addition to the State of Colorado tax credits, qualified conservation easement donations are eligible for Federal Income Tax benefits. Currently, landowners may deduct up to 30% of their Adjusted Gross Income (AGI) for up to six years. Land Trusts across the country remain hopeful that Congress will reauthorize the expanded federal tax benefits in the 2008 Federal Farm Bill. If so, 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. Please contact us for the latest news on Federal Income Tax benefits for land conservation.
* 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.