Tax Benefits of Conservation
Looking to the Future
Gunnison Valley landowners have a special connection to their land. By working together, we can ensure the integrity of your natural resources forever.
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Protecting your land through the donation of a conservation easement may provide significant tax benefits. We recommend that you consult with an accountant for information as to how these incentives might specifically apply to your situation. THIS PAGE IS NOT A SUBSTITUTE FOR INDEPENDENT LEGAL AND TAX ADVICE. Please consult your tax adviser or attorney.
Congress passed the first tax benefits for qualified donations of conservation easements in 1976. In 2006 the enhanced conservation easement tax incentive program was enacted. A strong statement of support was made in 2015 when federal legislation made the program permanent. This incentive allows landowners who voluntarily donate a conservation easement (CE) to deduct the value of that qualified CE donation up to 50 percent of their Adjusted Gross Income (AGI) per year for up to 16 years. Qualified farmers and ranchers can deduct 100% of their income per year over the same period. Additional limits and restrictions apply, including the “Pease” limitation, which progressively decreases the value of itemized deductions on earnings over $250,000 – $300,000 (depending on filing status). The Land Trust Alliance has put together a little more information on this incentive here.
Estate taxes can be burdensome for many landowners, especially agricultural producers. These taxes can force families to sell or subdivide their land. Estate tax incentives can help individuals and families keep large tracts of land intact and in family ownership. Conservation easements reduce the value of property for estate purposes and are valued in their restricted state. An additional 40% estate tax exclusion exists for land encumbered with a CE up to $500,000. See sections 2055(f), 2031(c) of the Internal Revenue Code for more information.
We are very fortunate in Colorado to have a strong state tax credit program which grew out of our citizens’ commitment to protecting open lands, keeping farms and ranches productive, and ensuring recreational access for all. A series of laws allows landowners to earn income tax credits when they donate qualified conservation easements to a state-certified entity (like the Crested Butte Land Trust). These tax credits are available to landowners making a full or partial donation of their CE in accordance with federal and state regulations and they are transferable.
These tax incentives were enhanced in 2015. Qualified easement donations receive a tax credit worth 75% of the first $100,000 of conservation easement value and 50% of the remaining value up to a maximum credit of $1.5 million. Tax credits may be used against a landowners state tax liability and carried forward for up to 20 years from the year of donation, or you may sell the credit to another Colorado taxpayer. Donors are limited to one tax credit per year.
After the closing of a conservation easement, the transaction and all of its due diligence are reviewed by the Colorado Division of Real Estate, which has the ability to approve, deny or ask for more information about the donation. Once approved, the Division provides the donor with a Colorado tax credit certificate ensuring the legitimacy of the appraisal and the projects conservation purposes. Conservation tax credits may not be claimed without a tax credit certificate from the Colorado Division of Real Estate.
TAX CREDIT CAP
The amount of Colorado funding allocated to conservation tax credits is capped annually at $45 million. Credits are allocated in the order applications are received by the Division of Real Estate, and once the cap is reached, landowners may be placed on a waiting list of up to $15 million to receive a credit in the following year.
BUYING AND SELLING TAX CREDITS
A taxpayers without enough income tax liability to make use of these credits may benefit by selling all or part of their credit to other Colorado taxpayers. Credits may be sold through brokerage services around the state, or by the donor directly. Tax credits must be sold by April 15 of the year following the donation in order for those credits to be applied against the previous year’s tax liability. If the credit has been held for under a year prior to sale, it may be treated as ordinary income; if the credit has been held more than a year prior to sale, it may be treated as long-term capital gains.
Businesses or individuals may purchase Colorado state income tax credits in the amount of $20,000 or more. Tax credits are often purchases at a discounted rate. Tax credits purchases must be completed no later than April 15 in order to apply the credit to the previous year’s income taxes.
Consult your tax adviser for more info.
TAX CREDIT REFUNDS
A dollar for dollar refund of the conservation easement tax credit is available to taxpayers in $50,000 increments per year, during years of State budget surplus. Taxpayers should check with their tax advisers as to how and when to take such a refund.