Conservation easement income tax credits are a relatively new land preservation tool available to help Colorado landowners preserve their working farms and ranches, and protect wildlife habitat and scenic views. Conservation easement tax credits enable landowners to get compensation for the development potential of their land without developing it. In order to receive conservation easement income tax credits, a landowner must donate a conservation easement to a qualified conservation organization.

A conservation easement is a permanent restriction on how the land can be used, often preventing or limiting commercial, industrial and residential development in order to protect conservation values (wildlife habitat, open space, public recreation, working agricultural lands and scenic vistas, among others). The land stays in private ownership and can be mortgaged, leased, sold or passed to heirs; however the restrictions follow the land forever.

A landowner’s major reward for donating a conservation easement is to earn Colorado state income tax credits. The value of the credits is based on a qualified appraisal of how much value the landowner is giving up by permanently restricting the use of their land. For example, if the property was worth $1,000,000 as a potential subdivision (what could be done today), but is only worth $600,000 as farm ground and a house site (use restricted by the conservation easement), the donation value would be the difference between the two or $400,000. Based on the donation value, the landowner will earn tax credits at the rate of 50% of the donation value up to a cap of $375,000 (based on a $750,000 donation value). Landowners can use tax credits to offset up to 20 years of their state income tax liability.

For many people, their state income tax liability is low enough that using the tax credits is not attractive. The other option is to sell all or some of the credits through a tax credit broker for approximately 80% of the face value of the credit.

Buyers of the credits have an incentive because they buy the credits at a discount, saving money on their taxes. For example, a buyer may purchase $100,000 in tax credits for 85% of face value or $85,000 and save $15,000 on their state taxes. Buyers are interested in purchasing tax credits that are capable of withstanding any challenges by the IRS or the State of Colorado, therefore it is important that landowners hire qualified professionals and work with experienced land trusts. The Colorado Coalition of Land Trusts can help you locate an experienced land trust. Checklists to help you select the best professional team are available at www.taxcreditconnection.com.

Donating a conservation easement isn’t the best fit for all landowners, but for ones who want to stay on their land and ensure that it remains undeveloped, it can allow for a cash infusion and the peace of mind that the farm will always remain a farm and the elk will always have a place to graze.

For more information, please contact:
Ariel Steele • Tax Credit Connection, Inc. • 303 774 8127
2919 W. 17th Ave., Ste. 201 • Longmont, CO 80503
ariel@taxcreditconnection.com www.taxcreditconnection.com
This information is not intended to be legal or financial advice. Please consult your own advisor.