What is a Land Trust?
A Land Trust is a nonprofit organization that actively works with landowners to voluntarily conserve land located in the area the Land Trust serves. Land Trusts primarily accept donations of land or Conservation Easements and sometimes purchases these rights, then steward these easements into perpetuity.
How Many Land Trusts exist?
Today, there are more than 1,700 local and regional Land Trusts across the nation protecting more than 37 million acres of farmland, wetlands, ranches, forests, watersheds, river corridors and other land types, as well as several national Land Trusts that have protected millions more acres. Mountain Area Land Trust (MALT) is one of 32 Land Trusts and 11 public agencies that are members of the Colorado Coalition of Land Trusts.
What Differences Exist in Land Trusts?
Land Trusts vary greatly in scope and scale, but all of them share the common mission of working cooperatively with landowners to protect and conserve land for its natural, recreational, scenic, historic, ecological and agricultural values.
What Does a Land Trust Do?
and regional Land Trusts, organized as charitable organizations under Federal
tax laws, help conserve land for natural, recreational, scenic, historical and
productive values. Land Trusts can
purchase land for permanent protection, or they may use one of several other
- Accept donations of land or the funds to purchase land
- Accept a bequest or accept the donation of a Conservation Easement, permanently limiting the type and scope of development that can take place on the land
- Purchase conservation easements.
What is a Conservation Easement?
A Conservation Easement is a voluntary legal agreement between a landowner and a Land Trust (or government entity) that permanently restricts certain aspects of land use in order to protect the conservation values of the property. Landowners may either donate or sell a Conservation Easement. When a landowner places a Conservation Easement on his or her land, he or she maintains ownership and use of the property and can sell it or pass it on to heirs. The land is subject to certain restrictions agreed upon by the landowner and the Land Trust. For example, a landowner might agree to limit development on his or her property to one residence of a particular size.
Future landowners are bound by these restrictions as well, and the Land Trust is responsible for monitoring the property and upholding the terms of the easement. Conservation Easements have become one of the most commonly used land conservation tools in the country.
What are the Benefits of a Conservation Easement?
In addition to the satisfaction landowners get from knowing their land is protected in perpetuity, there are also four potential tax advantages to granting a Conservation Easement:
- State income tax credit
- Federal income tax deduction
- Estate tax benefit
- Reduction in property taxes
A Conservation Easement donation that meets certain Federal tax code regulations, i.e., one that is perpetual, donation to a qualified conservation organization and given “exclusively for conservation purposes”, can qualify as a tax-deductible charitable gift (See Internal Revenue Code Section 170(h)(1)). By removing or decreasing a property’s developmental potential, a Conservation Easement may also result in the reduction of property taxes in some states and estate tax benefits for the landowner and his or her heirs (Landowners should consult a tax attorney for more information on the potential tax benefits of donation a Conservation Easement).
What are Some Objectives of a Land Trust?
- Conserve scenic lands, habitat for wildlife and rare plants, natural areas, wetlands and watersheds, recreational areas, ranching and agricultural lands and buffers between urbanizing areas.
- Provide information, expertise and education about land conservation options to private land owners, government programs, developers and others.
- Accept Conservation Easements on private and public land and protect the conservation values on those lands in perpetuity; care for conservation lands through stewardship and monitoring.
- Enter into willing-donor or willing-seller Conservation Easements, bargain sales, life estates, charitable remainder trusts and other land conservation techniques.
- Work confidentially with private property owners and those who cannot or will not work with government agencies.
- Augment and complement local Town and County government open space programs and work cooperatively with those entities.
- Raise funds to purchase open space at market value or at a reduced rate (also called a “bargain sale”).
How Does MALT Work?
MALT is a private, non-governmental organization and is not tax-supported. As a private non-profit organization, MALT is able to work with landowners confidentially. When a local government agency needs a third-party organization to hold a Conservation Easement on their land, MALT can fill that role for the community’s open space programs. MALT augments and complements local government open space programs, and provides another choice of conservation option in our community.
To save scenic vistas, natural areas, wildlife habitat, water resources, working ranches and historic lands, for the benefit of the community and as a legacy for future generations.
MALT’s Service Area
MALT services a 4,290 square-mile area encompassing Clear Creek County, Park County, Gilpin County, Teller County and the mountainous regions of Boulder County and Jefferson County, Colorado. Since 1992, MALT has conserved 22,146 acres of land, including:
- 16,048 acres conserved in 76 private Conservation Easements through October 2017.
- 133 acres owned by MALT including 92 acres Pennsylvania Mountain, near Fairplay, Colorado.
- 5,965 acres protected through facilitated public projects, such as Noble Meadow, Bergen Nature Trail and Blair Ranch.
MALT accepts donations or property and Conservation Easements. MALT’s Conservation Easements allow for traditional uses such as farming, ranching, hunting, fishing and open space. All of MALT’s current Conservation Easements do not allow for public access.
MALT monitors each conservation property annually to ensure that the terms of the Conservation Easement are being met. If a violation of a Conservation Easement occurs, it is MALT’s obligation to ensure that the violation is corrected. MALT has had no Conservation Easements violations to-date. Still, it is prepared to defend all of its Conservation Easements should a violation or legal challenge occur. Towards this end, MALT has built a dedicated stewardship and legal defense fund of sufficient size to ensure that it is financially capable of stewarding and defending its Conservations Easements in perpetuity. MALT operates its in accordance with the Land Trust Alliance’s Standards and Practices.
Are Land Trusts Government Agencies?
No, Land Trusts are non-governmental organizations that work with landowners who are interested in protecting open space. However, Land Trusts often work cooperatively with government agencies by acquiring or managing land, researching open space needs and priorities, or assisting in the development of open space plans.
What are the Advantages of Working with a Land Trust?
Land Trusts are closely tied to the communities in which they operate. They understand the concerns of the community and the needs of the landowners. They recognize how landscapes differ and have different requirements. Their nonprofit tax status brings a variety of tax benefits to landowners. Donations of land, Conservation Easements or money may qualify for income or gift tax savings. Further, because Land Trusts are private organizations, they can be more flexible and creative in conservation options than public agencies. Land Trusts have the expertise and experience to work with landowners to ensure that the land remains as permanent open space.
I First Heard about Land Trusts Just a Few years ago. Are they New?
Not at all! A few Land Trusts have already celebrated their centennials, but most are younger. In 1950, for example, just 53 Land Trusts operated in 26 states. Today, hundreds of Land Trusts operate across the country, serving every state in the nation.
What has Contributed to the Huge Growth in the Number of Land Trusts?
People are tremendously concerned about the unmitigated loss of open space in their own communities. They see subdivisions supplanting the open spaces where they once walked and hiked, and they want to know how they can gain the power to save the open spaces that make their communities unique. Many are turning to Land Trusts as the local entities set up to conserve land.
Are Land Trusts Successful?
According to the Land Trust Alliance 2015 Census, Land Trusts have conserved 56 million. Land Trusts employ 8,184 staff members and maintain 4.6 million members and financial supporters. Nationwide, 2015 saw 6,250,000 visitors to Land Trust properties. Notably, 77% of the total acreage owned and under Conservation Easement are held by an accredited Land Trust.
What Types of land do Colorado’s Land Trusts Protect?
It’s up to the specific priorities of each Land Trust, but most Land Trusts in Colorado work to conserve agricultural, working ranches, open space lands, wildlife habitat, wetlands and riparian areas, river corridors and community gardens.
Why Should I Consider Conserving My Land?
Conserving your land may be the single most important contribution you can make for future generations. Many landowners execute a Conservation Easement because they love their open space land and want to protect it from development while keeping private ownership of the property. Depending on your individual circumstances, there may be income tax and estate tax benefits. Placement of a Conservation Easement on a property can also be an effective estate planning tool by allowing land to pass from one generation to the next by lowering the value of the land and thus lessening the amount of the estate taxes due upon the death of the landowner if an heir is to inherit the land. The donation of a perpetual Conservation Easement in Colorado allows the donor to claim a state income tax credit up to $1,500,000, depending on the value of the donated easement, and under certain circumstances, the tax credit may be transferred to a third party for cash.
In Addition to Conservation Easements, What Other Conservation Methods Do Land Trusts Use?
Land can be given to a Land Trust as an outright donation, or it can be donated to a Land Trust in a number of other ways, such as through a remainder interest or a bequest. Most land is donated to Land Trusts for its important conservation values and is protected in perpetuity; however, commercial and residential property can also be donated to a land Trust with the understanding that it will be sold to support the organization’s conservation work.
- Outright Donations: A donation of land to a Land Trust can be an effective conservation strategy for one who does not wish to pass land on to heirs; owns highly appreciated property; no longer uses the land they own; wishes to reduce estate tax burdens; or is no longer willing or able to manage and care for the land. By donation land to a Land Trust, an owner may realize substantial income and estate tax benefits while avoiding capital gains taxes that may have resulted from the sale of the property.
- Remainder Interest: A gift of a remainder interest (also known as a reserved life estate) is granted when a landowner donates land to a trust during his or her lifetime but reserves the right for him or herself, and any other named party, to continue to live on the land until their death(s) or voluntary release of the interest. Donors of remainder interests may be eligible for income tax deductions.
- Land Donation by Will or by Devise: A landowner can continue to own and manage his or her land during his or her lifetime but still ensure its ultimate protection after death by donating land to a Land Trust through his or her will. This is called a gift by devise. If a landowner is interested in donation an easement or land through his or her will, he or she should discuss his or her plans with the Land Trust to ensure that it is willing and able to accept the gift.
- Land Sales: A landowner may want to protect his or her land permanently but be unable or unwilling to relinquish that land without receiving financial compensation. In this case, the landowner may choose to sell his or her land to a Land Trust. The property may be sold at fair market value or at a price below fair market value, which is referred to as a bargain sale.
Why Should I Not Do a Conservation Easement?
Conservation Easements limit potential future uses of the property, particularly subdivision development. Because of this, Conservation Easements restrict heirs or future owners’ rights and will lower the value of the property on the open market.
Are Conservation Easements Popular?
They are very popular Landowners have found that Conservation Easements can be flexible tools and yet provide a permanent guarantee that the land won’t ever be developed. Conservation Easements are used to protect all types of land, including: farm and ranch land, historical or cultural landscapes, scenic views, streams and rivers, wetlands, wildlife areas and working forests.
How can a Conservation Easement be Tailored to my Needs and Wishes?
A Conservation Easement restricts development to the degree that is necessary to protect the significant conservation values of that particular property. Sometimes this totally prohibits construction, and sometimes it doesn’t. Landowners and Land Trusts, working together, can write Conservation Easements that reflect both the landowner’s desires and the need to protect conservation values. Even the most restrictive Conservation Easements permit landowners to continue such traditional uses of the land as farming and ranching.
What Steps do I Take to Write a Conservation Easement?
First, contact MALT to become acquainted with the organization and the services provided. Explore the conservation values you want to protect on the land with them. Discuss with MALT what you want to accomplish and what development rights you may want to retain. For example, you may already have one home on your property and want to preserve the right to build another home. That is one provision that must be specifically written into a Conservation Easement agreement. Always consult with other family members regarding a Conservation Easement, and remember that you should consult with your own attorney or financial advisor regarding such a substantial decision.
How Long does a Conservation Easement Last?
Most Conservation Easements “run with the land,” binding the original owner and all subsequent owners to the Conservation Easement’s restrictions. Only gifts of perpetual Conservation Easements can qualify for income and estate tax benefits. The easement is recorded at the County or Town records office so that all future owners and lenders will learn about the restrictions when they obtain title reports.
Can Easements ever be Terminated or Amended?
Conservation Easements are permanent encumbrances on a property that connot be revoked or terminated, except by a court order. If the property is condemned or circumstances change such that the purposes of the Conservation Easement becomes impossible to accomplish, there are mechanisms by which the easement may be legally terminated in a court of law, and any condemnation proceeds are distributed between the landowner and the Land Trust.
Amendments to easements may be made to further the conservation purposes of the easement, account for unforeseen circumstances, correct typographical, clerical or factual errors or clarify language in the easement deed. No amendment may be made to confer private benefits onto the donor, landowner or any other individual that exceed the benefits gained by the general public. Amendments may also not affect the perpetual nature of the Conservation Easement or its qualification according to C.R.S Section 38-30.5-101, et seq., or Section 170(h) of the Internal Revenue Code. Land Trusts are under no obligation to amend an easement and may decline to do so at their sole discretion.
Will Placing my land under Conservation Easement Reduce my Property Taxes?
The treatment of conserved lands for property taxes purposes is described in the Colorado Revised Statues Sections 38-30.5-109 and 39-1-102(1.6)(a)(III), stating that lands protected by Conservation Easement shall be assessed “with due regard to the restricted uses to which the property may be devoted,” and the agricultural status of the land at the time of the easement’s grant. Actual assessment may vary from county to county. In general, land assessed as agricultural prior to its placement under Conservation Easement will retain its agricultural assessment provided that the property is at least 80 acres, or less than 80 acres without any residential structures. Other non-agricultural conserved land should be valued with regard to the restrictions placed upon the property, which in most cases will reduce the assessed value. If you are concerned about the impacts that a Conservation Easement might have on your property taxes, we recommend that you contact your County Assessor.
What does it Cost to Donate a Conservation Easement?
Donating conservation easement cost money. Most Land Trusts require a fee to cover the costs of the transaction and then a contribution to help cover the costs of ongoing monitoring and future defense of the easement, and the IRS requires that the easement donation be properly documented, including an appraisal, baseline inventory and geologist’s report. In addition, we recommend that you hire an attorney and/or tax advisor to counsel you through the process. After all is said and done, creating an easement may cost about $40,000 - $50,000 depending on the transactions complexity (for a detailed accounting of this cost, please see MALT’s Landowner Packet).
If I Put a Conservation Easement on my Property, Must I Allow Public Access?
No. You are not required to allow public access, even if public funds are used to purchase the Conservation Easement. Allowing public access for a trail or other use would be a voluntary donation by the landowner.
What Happens to the Conservation Easement if I Sell the Land or Die?
Land protected with a Conservation Easement may be sold or passed down to one’s heirs. The easement agreement remains a permanent part of the title and will run with the land even after its transfer. The landowner may continue to use and enjoy the land in ways consistent with the easement, which may include ranching, recreation or other uses. In some circumstances, easements may allow for additional home sites on a small portion of the property, or may provide for small “building envelopes” within which the uses are not restricted by the easement.
Are Water Rights included in a Conservation Easement?
If a landowner owns the water rights, water rights are usually part of the Deed of Conservation Easement. Some or all of the water rights stay with the land to protect wetlands, river corridors, irrigated hay meadows and other water-dependent conservation resources.
Do you Work with Government Open Space Programs?
Yes, MALT works with local government open space programs in varying capacities: sharing information, helping with educational programs, providing volunteers for projects and holding Conservation Easements.
Is it MALT’s Goal to Find Land and Lock it up so it Cannot be Developed?
No, not all land is suitable for conservation as open space. MALT is interested in lands with conservation values of significant public benefit, such as wildlife habitat, wildlife migration corridors, scenic views, recreational opportunities, buffers between communities, buffers adjoining parks and public open space and the preservation of our community’s ranching and agricultural heritage.
MALT has adopted a Conservation Plan that prioritizes six areas within the service area for conservation. These areas are in the vicinity of population centers and are highly prioritized due to the anticipated development of open space in the near future in these locations. MALT’s priority areas for conservation surround the 285 corridor, Upper Bear Creek in Evergreen, northern Jefferson County and Gilpin County, the Fairplay/Alma area and the two population centers in southwest Park County, Hartsel and Guffey.
If Conservation Easements ae Donated, Why does the Land Trust Need Funding?
In taking on the responsibility to negotiate, accept, and hold Conservation Easements forever, the Land Trust incurs considerable expenses. In the first phase of the negotiations, MALT staff meet with landowners, tour the property, identify the conservation values, explain the process, provide information and documents, work with the landowner’s attorneys, negotiate the terms of the Deed of Conservation Easement and oversee the process at every step along the way. The Land Trust will also work with baseline preparers to identify and document the Conservation Values and existing infrastructure of the land.
Once the supporting documents have been approved and the Deed of Conservation Easement has been finalized and recorded, the Land Trust takes on the perpetual responsibility of monitoring (but we don’t manage) the land, to ensure that the agreed upon conservation values are protected forever. This involves an annual visit to the property and on-going communication with the landowner(s).
Because land protected by a Conservation Easement provides benefit to the public, the Land Trust needs the public’s financial support to further our mission and programs.
Where Does the Land Trust’s Funding Come From?
Concerned citizens who want to see the natural beauty of these Colorado landscapes protected for now and future generations make charitable donations to Land Trusts. Most of MALT’s funding comes from individuals, local businesses and private foundations. Some funding comes from special events and educational programs.
How Does MALT Provide for the Long-Term Stewardship of its Conservation Easements?
With the acceptance of each Conservation Easement, Landowners must make a one-time contribution that is applied to our Stewardship Fund. MALT’s Stewardship Fund is invested to protect it from inflation, as well as to provide a small annual return to help fund monitoring expenses. The principle is kept intact to be used in the event a Conservation Easement needs to be defended in the future.
What is Conservation Easement Monitoring?
Conservation Easements held by the Land Trust are monitored annually to ensure that the conservation values of the land are being preserved and to determine if the terms of the Conservation Easement are being upheld. Each year, MALT monitors each of the Conservation Easements it holds, using staff or qualified independent contractors. They walk the property checking areas of interest, taking notes and photos at designated photo points along the way to verify that there have not been any significant changes to the natural resources from the prior years or the baseline report.
If I am Interested in Donating Land, are Funds Available to Assist with the Transaction Costs?
Potentially. Some entities can provide funding assistance for transaction costs associated with donated Conservation Easements. These organizations including Great Outdoors Colorado, County Open Space programs, Colorado Conservation Trust, Colorado Division of Wildlife and others have helped cover Conservation easement costs. However, competition for limited dollars is tough and projects must be especially compelling in order to qualify for such funds. In addition, most funders want to be involved throughout the process which can lengthen timelines and may impose restrictions that are unacceptable to the landowner.
MALT has the experience and contacts to pursue such funds if the project would compete well.
Does MALT Own the Property if I Donate a Conservation Easement to them?
No, MALT does not own the property. The organization only has an interest in the property and helps control those rights that the landowner wishes to restrict or eliminate (such as development rights). The landowner continues to own the property under the terms of the Conservation Easement.
What are a Land Trust’s Responsibilities Regarding Conservation Easements?
The Land Trust is responsible for enforcing the restrictions that the Conservation Easement document spells out. Therefore, the Land Trust monitors the property annually to determine that the property remains in the condition prescribed by the Conservation Easement document. The Land Trust maintains written records of these monitoring visits, which also provide the landowner with a chance to keep in touch with the Land Trust.
Can Land Trust Staff Come on my land Whenever They Want?
No. MALT’s staff sets up an appointment with each landowner once a year to monitor their Conservation Easement. The time is mutually agreed upon by MALT and the landowner.
Can a Conservation Easement Stop Condemnation?
A Conservation Easement will not automatically prevent public condemnation. The government’s power of eminent domain will supersede any number of private covenants, Conservation Easements or other legal devices. Having an interest in the property through a Conservation Easement, MALT will partner with the landowner to oppose any government action that would damage the conservation values of the property.
Do I Have to Hire an Attorney or Accountant to Represent Me?
While MALT does not require that you have an independent counsel in a conservation transaction, we highly recommend it. At the very least, you should discuss your financial situation and any potential tax consequences with an experienced tax advisor prior to a Conservation Easement being signed and have them help you prepare your tax forms. In addition, it is your responsibility to understand the legal requirements and consequences of a Conservation Easement. Conservation transactions are permanent, and while MALT will guide you through the steps required to create a Conservation Easement, we cannot provide legal or tax advice.
What are the Public Benefits of Conservation Easements?
The public benefits from the permanent protection of scenic landscapes, wildlife habitat, recreational trail access, productive ranch and agricultural acreage, buffers between communities, wetlands and watershed protection and the preservation of unique natural lands. The economic viability of our communities is also dependent in large part on the preservation of the natural beauty and wide open spaces for the enjoyment of the public and protection of wildlife. Not all land protected by a Conservation Easement is available for public access. Even where conserved land is closed to public use, the public still benefits from the protection of scenic views, wildlife habitat, watershed protection and ranching and agricultural lands.
For many of us, saving the places that enrich our lives is reason enough to support conservation, but much more is at stake. Ensuring that our natural areas are preserved is critical to the quality of the air we breathe, the water we drink and the food we eat.
How is the Value of a Donated Easement Determined?
Only a qualified real estate appraiser can determine the value of a Conservation Easement donation for tax purposes. The appraiser will consider the property’s “before” value on the open market under current zoning and its “after” value with a Conservation Easement restrictions on it. The difference between these two figures is the donated value of the Conservation Easement.
Hypothetical valuation for State Tax Credit on a 160 acre project:
Before appraisal ($10,000/acre) $1,600,000
After appraisal (50% - $5,000/acre) $ 800,000
Conservation Easement IRS Donation Value $ 800,000
State Tax Credit ($75,000 of the first $100,000 and 50% of
The Donation Value up to $3,000,000 or $1,500,000) $ 475,000
Broker discount (15-17% - varies) $ 60,000
Landowner gross from sale of tax credit $ 415,000
Landowner up-front costs (varies) $ 50,000
Landowner net $ 365,000*
*Does Not Include Federal and State Income Tax Owed.
Variables include Number of acres, Before appraisal value, After appraisal value, Broker fee and Landowner up-front costs.
Can I Find Someone to Buy the State Tax Credits on my Conservation Easement?
Yes, since the Tax credit program has been in effect, every landowner MALT has worked with has found a buyer for their credit. There are several reputable brokers who match Conservation Easement donors with buyers of tax credits.
Do I have to be a Colorado Resident to Qualify for the Colorado Tax Credit?
According to C.R.S. Section 39-22-522, taxpayers who may qualify to claim the Colorado gross Conservation Easement credit (including transferees of these credits) include:
- Colorado residents,
- C corporations, trusts and estates,
- Partners, shareholders or members of pass though entities (such as LLCs) which receive the credit from such entity, regardless of whether those individuals are Colorado residents.
The following restrictions apply:
- Joint tenancy, tenancy in common and pass-through entities such as a partnership, S corporation, or LLC, must allocate the credit to the entity’s members in proportion to their distributive shares of income or ownership percentage in such entity or group.
- A single-member LLC will generally be disregarded for federal tax purposes (I.R.S. Regulation 301.7701-3) as well as state tax purposes and does not qualify for the Conservation Easement tax credit unless the member is a Colorado resident.
- Individuals who are not residents of Colorado cannot claim the Conservation Easement tax credit. Part-year residents may claim the credit only if they make the donation while they are Colorado residents. Nonresident owners included in a joint tenancy, tenancy in common, and similar groups cannot claim the Conservation Easement tax credit. Only a credit apportioned to nonresident members of a pass-through entity can be claimed by nonresidents.
Additional restrictions may also apply. For more information, see C.R.S. Section 39-22-522, and the State of Colorado Taxpayer Service Division’s FYI 39 regarding the Gross Conservation Easement Tax Credit www.revenue.state.co.us/fyi/html/income39.html
Will the IRS Tell Me in Advance if My Conservation Easement Donation Qualifies for Tax Benefits?
In the past, the IRS has, for approximately $5,000-$10,000, issued a private letter ruling for an individual Conservation Easement donation that determines whether the donation qualifies for tax benefits based on the stated case and circumstances at the time. The IRS will NOT rule as to the Conservation Easement’s value or pre-approve an appraisal. Private letter rulings should not be relied upon by or extrapolated to other cases or circumstances not under review.
What is the Colorado Conservation Tax Credit?
The State of Colorado allows a State income tax credit of up to $1,500,000 for landowners who elect to place a Conservation Easement on his or her land. While allowing the landowner continued ownership and use of the land the Conservation Easement protects the Conservation Values of the property.
Colorado Coalition of Land Trusts (CCLT) has a section of their website dedicated to Colorado tax policy and federal tax policy with regard to Conservation Easements. www.cclt.org Landowners should visit that web site and consult with your tax and legal advisors for the most up to-date information.
How does the Colorado Conservation Tax Credit work?
The tax credit is earned when you make a valid Conservation Easement donation to a qualified Land Trust or government open space program. The value of the credit is determined by considering the property’s “before” value on the open market under current zoning and its “after” value with a Conservation Easement restrictions on it. The difference between these two figures is the donated value of the Conservation Easement. The amount of the credit is 50% of the value donated, up to $1,500,000.
What Limitations are put on Earning a Colorado Conservation tax Credit?
An individual or entity may earn only one Colorado Conservation Tax Credit in a calendar year. An individual or entity cannot earn a credit in any year in which they have an outstanding credit that has not been entirely used, by the individual, entity or third party to whom it was transferred.
How can I use this Conservation Tax Credit?
The credit can be used to pay your own State income taxes obligations, in surplus years receive a cash refund or transfer (sell) the credit to a third party.
What if there is More Credit than Tax Owed?
If your State credit exceeds the taxes owned in that year, the credit can be carried forward and used over the next twenty years. The credit will expire if not used within the stipulated twenty year period. Colorado state law provided that in years of a budget surplus you may claim a cash refund of up to $50,000.
What are the Restrictions on Transferring the Credit to a Third Party?
The credit may only be transferred once. A landowner may use a portion of the credit and sell the remaining balance. Should a State surplus exist and you claim a refund you may not transfer any portion of the credit to a third party in that year. A third party who purchased a credit may only use that credit to offset their taxes and are not eligible for a tax refund.
What is the Process of Transferring a Colorado Conservation Tax Credit?
You have until the tax filing deadline of the following year to complete the transfer for applying the credit in a given year. Usually tax credit sales occur during the last quarter of the year or the following quarter.
Latest Development in Tax Incentives for Conservation Easements
To learn more, please visit the national Land Trust Alliance’s comprehensive page on federal tax incentives, www.lta.org.
State Incentives for Colorado Taxpayers: Colorado has been one of the most progressive states in the nation in creating state tax incentives for donors of qualified Conservation easement contributions. Colorado Law (C.R.S. §39-22-522(4)(a)) enables the creation of a Colorado income tax credit for 50% of the value of the conservation contribution, up to a maximum credit of $1,500,000. The donor has the option to:
- Apply the credit to offset his or her state income tax obligation, with a carry-forward period of 20 years
- To sell their credit to another Colorado taxpayers through a tax broker. (Tax Credits are typically sold for 83-85cents on the dollar)
- To receive a cash refund from the State in years of surplus
The Colorado Department of Revenue has created a full explanation of the tax credit on its web site. https://www.colorado.gov/revenue
Transferring Colorado Tax Credit
Sellers (Conservation Easement donor): The value of your contribution is established by a qualified appraisal. The value of the credit is 50% of your contribution (up to $1,500,000). You can work with a credit broker to match your credit with a buyer. You will receive cash at the time of the credit sale for the going market rate (typically this is expressed as a percentage).
Example: Conservation contribution is appraised at $500,000
Value of credit ($75,000 of the first $100,000 and 50% of the Donation Value up to $1,500,000) = $287,500
Going market rate 83-85%
Income from credit transfer ($287,500 x .84) = $241,500
Buyers: Save land while saving money! You may purchase a Gross Conservation Easement Credit at a discounted value, and use the full value to offset your state income tax obligation, typically saving 10-15% in tax payments. For example, you may pay $200,000 for a credit (20% discount), and offset $250,000 in Colorado income liability. At the same time, you are supporting the protection of Colorado’s scenic and biologically significant lands for generations to come!
If I Sell my Conservation Tax Credits for Cash, How will this Affect my Income Taxes?
Income from the sale of conservation tax credits is taxable. In addition, the amount of your federal income tax deduction for a Conservation Easement must be added back to your state income; therefore, we recommend that you have a qualified tax advisor help forecast your tax situation as you may wish to retain part of your credit to offset your state liability. Income from the sale of a tax credit may not be considered income derived from farming or ranching, which could affect your status as a “qualified farmer or rancher” under USC Section 2032A€(5) for the year in which you receive payment for your tax credit. If you qualify as a farmer or rancher for tax purposes, discuss this point with your tax advisor, as this one-time influx of non-ranch income may change the percentage of your adjusted gross income that is tax deductible through a Conservation Easement. Finally, remember that Conservation Easement donors cannot qualify for another Colorado conservation tax credit until their current credit has been completely used by either the donor or he buyer of the credit. Credits can only be transferred once, and may not be retransferred back to the donor. Unused credits survive death, and may be claimed or transferred by your estate.