Conservation Easement Benefits

There are significant tax advantages to donating a conservation easement, a powerful tool for land preservation. Through a detailed appraisal process, the value of a conservation easement is determined, offering substantial federal and state tax benefits. For tailored advice and up-to-date information, consult with Colorado West Land Trust or your legal advisor.

Tax Benefits

Determined Value of a Conservation Easement:

The value of a conservation easement is established through an appraisal process that compares the unrestricted value of the property versus the value of the property with the conservation easement restrictions in place.  The difference in these values is the value of the conservation easement.

For example:  A 1000-acre ranch near a quickly developing area may be valued at $2000/acre with the development rights intact (meaning the potential to subdivide and develop the property) for a total value of $2 million.  After a conservation easement is placed on the property allowing only 2 additional homesites, the property may only be worth $1250/acre or $1.25 million.  The value of the conservation easement would then be the difference between $2 million and $1.25 million or $750,000.

Federal Income Tax Benefits:

The value of a conservation easement that meets federal tax code requirements may qualify as a charitable deduction against the landowner’s federal income tax. The charitable deduction is determined by a qualified appraiser, as briefly outlined above. This deduction may be used to offset up to 30% (10% for C corporations) of the landowner’s adjusted gross income per year for the year of the donation plus the next 5 consecutive years, or until the donation values is expended, whichever comes first. For easements closing in the years 2006 through 2013 the deduction may be used to offset up to 50% (100% for qualified farmers or ranchers) of the landowner’s adjusted gross income per year for a total of 16 consecutive years. This enhanced federal incentive may be extended, please speak with Colorado West Land Trust for more information.

Colorado State Tax Benefits:

Qualified private property owners from Colorado may be eligible for a transferable tax credit for all or a portion of the conservation easement value. The value of the tax credit is determined at 75% of the first $100,000 in conservation easement value and 50% of the remaining value up to a cap of $1,500,000. The qualified property owner can 1) apply the conservation tax credit against their state income tax liability, 2) transfer (sell) the tax credit to another taxpayer that needs it for their state income tax liability, or 3) claim a cash refund from the state on revenue positive years. Any portion of the tax credit not used in the year of donation can be used in the 20 succeeding income tax years. The sale of the tax credit does generate taxable income, and no additional credits can be claimed until the original grantor or the transferee have used or forfeited the current tax credit. Note: the amount of credits available is limited and requires filing with the State. Beginning in 2014 there will be a tax credit certification process at that requires review by the State prior to generating any credits, check with Colorado West Land Trust for more information.

Estate Tax Benefits:

When a conservation easement is placed on a property, most often the property value will be decreased and this will decrease the taxable value of the deceased’s estate. In addition, if the easement qualifies under certain provisions of the Internal Revenue Code, then 40% of the property value remaining after the granting of an easement can be excluded from the value of the estate, up to a maximum exclusion of $500,000.

Property Tax Benefits:

If the property is being taxed at the agricultural rate at the time the easement is placed, the landowner may continue to receive the favorable agricultural tax treatment even if agricultural production is discontinued in the future.

*CWLT provides this information for the purpose of general knowledge. It does not constitute legal advice or opinion in any way. As these laws and regulations change over time, and as transcription errors can and do occur, we recommend that you obtain the actual text from qualified sources. You are urged to consult your own lawyer regarding specific legal questions you may have.