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 1,000-acre ranch near a quickly developing area may be valued at $2,000/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 home sites, the property may only be worth $1,250/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 may qualify as a charitable deduction against the landowner’s federal income tax.  This deduction may be used to offset up to 30% of the landowner’s adjusted gross income per year for a total of six consecutive years.  For easements closing in the years 2006 and 2007 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.

Colorado State Tax Benefits

On or after January 1, 2007, qualified private property owners can claim a fifty percent (50%) tax credit of the value of the donated portion of a conservation easement, on their state income tax return for up to a total of $375,000 in a single tax year. To claim the maximum allowable conservation tax credit of $375,000 in a single year – the property owner would be donating an easement, or portion of an easement, valued at approximately $750,000.  The qualified property owner can 1) apply the conservation tax credit against their state income tax liability, 2) claim a cash refund from the state on revenue positive years, or 3) transfer (sell) the tax credit to another taxpayer that needs it for their own state income tax liability.  Any portion of the tax credit not used in the year of donation can be used in the 20 succeeding income tax years.

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.

*MLT 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.