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.

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 Pension Protection Act, set to expire December 31, 2007, 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 2006 and 2007.

* 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.

Timothy Lindstrom, Esq., of The Jackson Hole Land Trust, has developed a thorough guide which can be found on their website. "A Guide to the Tax Benefits of Donating a Conservation Easement"

This information is provided as a general description of tax incentives available for qualified conservation easement donations and of how to encourage conservation through the purchase of Colorado tax credits. 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.