Are you a landowner looking for more information about conservation easements? Perhaps you are considering donating and easement and need a primer on the ins and outs of the process? This section is for you.
The Economic Benefits of Open Space Protection
Open space preservation not only benefits the environment and enhances quality of place, it can also benefit residents when it comes to tax time. It often costs a municipality less to buy selected open land than for residents to pay the higher taxes that result from development to build additional schools, to improve roads and to increase municipal services. Some studies have indicated that when a community buys and preserves land rather than allowing houses on every farm field, they break even on their investment within a few years. Read more…
Guide to Tax Benefits
In response to citizens’ concerns over the loss of open space in Colorado and throughout the country, both the State of Colorado and the federal government have recently expanded the tax benefits provided to landowners who donate qualified conservation easements.
State of Colorado
Beginning in 2007, House Bill 1354 replaced the previous two-tiered tax credit structure and increased 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 their gift while credit buyers facilitate conservation simply by paying their tax obligations to the donor rather than the State of Colorado.
This information is provided as a general description of tax incentives available for qualified conservation easement donations. Persons interested in pursuing a conservation easement or purchasing Colorado tax credits should seek professional tax and legal advice. Please note that the sale of Colorado conservation credits creates taxable income.
Federal Income Tax
In addition to the State of Colorado tax credits, qualified conservation easement donations are eligible for recently expanded federal tax deductions. According to provisions of the American Tax Payer Relief Act, set to expire December 31, 2013, landowners may deduct up to 50% of their adjusted gross income per year until the entire value of the donation has been deducted. Qualified farmers and ranchers* may deduct up to 100% of their income. In both cases, the deduction may be carried forward for a maximum of 16 years. This bill will apply to easements donated in 2013. We are working on making this enhanced easement incentive permanent with our senators and representatives in Congress.
* 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.
2013 Enhanced easement Incentive
Congress recently renewed, through 2013, an incentive that enhances the tax benefits of protecting your land by donating a voluntary conservation agreement. If you own land with important natural or historic resources, donating a voluntary conservation agreement can be one of the smartest ways to conserve the land you love, while maintaining your private property rights and possibly realizing significant federal tax benefits. Read more…
Steps to Donating an Easement
>> Download Landowner Steps to Completing an Easement
Preserving land through a voluntary conservation easement agreement can be a remarkable gift to your community. If you are interested in pursuing such a gift on your land, consider the following steps:
- Learn about conservation easements by contacting your local land trust and an attorney familiar with conservation law.
- Schedule a site visit with the land trust to determine if your land is eligible to be conserved under easement.
- Discuss any transaction costs that may be required to complete the deal, as well as potential tax benefits for a qualified donation.
- Talk with your family and a qualified accountant to decide if a conservation easement fits with your family and financial goals.
- Identify your property’s potential conservation values; decide what you would like to see preserved.
- Obtain a title commitment (or ownership and encumbrances report) to determine the status of ownership, mortgages, mineral interests, water rights, and other encumbrances on your land. Note that mortgages or liens must be subordinated to the conservation easement in the event that a property is subject to a mortgage (your land trust can help you do this). In addition, if the mineral rights are severed, the IRS requires a geologist to complete a mineral assessment detailing the likelihood of surface mining on the property. Finally, in order to claim Colorado conservation tax credits, the easement property must be owned by a Colorado taxpayer.
- Obtain a real estate appraisal that compares the “before” value of the land to its value after creation of the easement in order to determine the value of the gift for IRS tax purposes.
- Consult with a tax advisor or attorney regarding the financial and legal implications of placing your land under easement.
- If your easement is eligible for Colorado conservation tax credits, determine whether or not you would like to sell these credits or use them yourself. Notify your land trust and register with any tax credit brokers early if you decide to sell your credits.
- Prepare a deed of conservation easement in cooperation with the land trust – both sides should have legal counsel. Recognize that there are costs for the project for an appraiser, a consultant to prepare a baseline documentation report (as required by the IRS), and legal and financial advisors. Additionally, the Trust may charge for its technical services and you will be asked for a voluntary contribution to assist the Trust’s perpetual obligations to steward the property and defend the easement.
- Obtain a baseline inventory of the property to document the conservation values and ecological status of property at the time of donation. Sign and record the deed of conservation easement.
- File IRS form 8283 by April 15, signed by the land trust and your appraiser, to claim a federal income tax deduction.
- File Colorado Dept. of Revenue form DR 1305 by April 15 in order to claim or transfer your Colorado tax credit.
- Look for an annual monitoring visit from the land trust to verify that the easement is being honored.
Model Conservation Easement
The Eagle Valley Land Trust has created a model conservation easement to assist potential donors. This model easement is reviewed annually to ensure it is up-to-date with current regulations.
This model conservation easement is the ‘kitchen sink’ — designed to help potential donors consider all possibilities. Conservation easements are specifically tailored to meet the conservation and financial/tax planning needs of each landowner; few conservation easements look alike because few properties are the same, and few landowners want exactly the same provisions. The final conservation easement is the result of drafting and redrafting the document until all parties are satisfied.
» Download a copy of our model conservation easement.
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List of Service Provider Consultants
Arnie Butler and Company
Grand Junction, CO
Steamboat Springs, CO
Peterson Appraisal Company
David Peterson, Sr.
Ducker, Montgomery, Lewis & Bess, P.C.
Melinda M. Beck
1560 Broadway, Suite 1400
Denver, CO 80202
Noone Law Firm
Glenwood Springs, CO
Allan C, Beezley, PC
Otten, Johnson, Robinson, Neff & Ragonetti
Holland & Hart, LLP
Conservation Law, PC
BASELINE STUDY CONSULTANTS
Steve Boyle (Wetlands, Zoology, Geology)
Rare Earth Sciences, LLC
Colorado Wildlife Science, LLC
Jonathan Lowsky (Wildlife Biologist, Ecologist)
Rocky Mountain Ecological Services, Inc.
Eric Petterson (Wildlife Ecologist)
EM Ecological, LLC
Lisa Tasker (Plant Ecologist)
Tim Malloy Consulting LLC
Glenwood Springs, CO
Land Stewardship Consulting
Alan Carpenter, PhD
Fox & Co. Planning Services
Land Planning Collaborative
Peter Jamar Associates
Mauriello Planning Group LLC
Knight Planning Services
Pylman & Associates Incorporated
TAX CREDIT BROKERS
Colorado Conservation Connections
Tax Credit Connection, LLC
Conservation Resource Center