Landowners – read more about Conservation Easement Tax Credit Certificates by using the links on the State of Colorado’s Resources and References webpage.
Central Colorado Conservancy is a professional organization experienced working with landowners to help them explore conservation options for their properties. We focus on identifying the needs of the landowner to help them reach their long-term goals.
Contact us to find out more about conservation strategies that might work for you:
Lucy Waldo, Conservation Director –firstname.lastname@example.org, 970-901-1816
Andrew Mackie, Executive Director – email@example.com, 719-539-7700
Are You Considering Protecting Your Land with a Conservation Easement?
Are you considering protecting your land with a conservation easement?
Central Colorado Conservancy helps families protect their land with permanent conservation easements. Conservation easements limit future development and keep the land forever available for agriculture, wildlife habitat, and scenic views. We would be happy to talk with you about how conservation easements work, review a draft easement with you, and discuss possibilities for your particular property and your goals.
Colorado’s expanded tax credit for donated conservation easements is quite generous. The regulations are a little complicated, but basically you can receive a tax credit of 75% of the first $100,000 of an easement’s value and 50% of the value beyond that, up to a maximum credit of $1.5 million. You can use these credits against your state income tax bill or you can sell them, usually for 80%-85% in cash. For example, if you donated a conservation easement valued at $1,000,000, you would receive $525,000 in state tax credits, which you could most likely sell for at least $420,000. These tax credits may also be carried forward to pay your Colorado income tax for up to 20 years. In a year of a state budget surplus, you can also get up to $50,000 in cash refund for the credit.
If the US Congress reauthorizes the 2014 tax rules, landowners can also claim a federal tax deduction of up to 50% of the donor’s adjusted gross income in any year, or up to 100% for eligible agricultural producers. The donor may carry forward any unused deduction for up to 15 years after the year of the donation until the deduction is fully used (i.e., the donor will have a total of 16 years in which to claim the deduction.) A conservation easement may also reduce estate taxes when the land is passed along to your heirs.
Frequently Asked Questions about land trusts and conservation easements
What is Central Colorado Conservancy?
Central Colorado Conservancy is a non-profit organization established as a charitable entity under the laws of the United States and Colorado. Land trusts work with landowners to voluntarily conserve agricultural and open lands. Central Colorado Conservancy is certified by the State of Colorado to hold conservation easements and is also a registered charity.
What is the mission of Central Colorado Conservancy?
Our mission is to protect important agricultural, natural, scenic, and historic lands in Lake, Chaffee, Fremont, Saguache, and western Park Counties in Central Colorado.
How do I conserve land?
Central Colorado Conservancy uses a variety of tools to accomplish land conservation, including the acquisition (by donation or by purchase) of conservation easements, deed restrictions, and fee title to land, voluntary management agreements, and strategic estate planning. We are experts at working with willing landowners to craft the result that works best for the landowner and their community.
What is a conservation easement?
A conservation easement is a legal agreement between a landowner and a land trust that permanently restricts the uses of the land in order to protect its conservation values. A conservation easement allows you to continue to own and use your property and to sell it or pass it on to your heirs. Conservation easements do not require a landowner to grant public access across private property. In some cases, conservation easements allow some future development to occur on the property, depending upon the needs of the landowner; however all conservation easements involve the giving up of some rights associated with the land. Conservation easements are extremely flexible, and each is tailored specifically to the individual landowner and the landowner’s family. Because of this flexibility and the tax benefits associated with the bargain sale of or donation of a conservation easement, it has become the most popular conservation tool of choice for landowners across the country. Central Colorado Conservancy is responsible for making sure that the easement’s terms are followed forever.
Why do landowners grant conservation easements?
Protecting your land with a conservation easement will not be as financially lucrative as selling your property on the open market. However, a conservation easement will protect your property forever from development and other uses that are prohibited in the conservation easement document. If you donate a conservation easement to Central Colorado Conservancy, you are potentially eligible for certain tax benefits at both the State and Federal levels.
What are the tax benefits for donating a conservation easement?
The donation of a conservation easement can qualify as a tax-deductible charitable donation, if it meets strict federal tax code requirements. Colorado state taxpayers who donate a conservation easement are also eligible for a state tax credit of up to $1.5 million. Also, a conservation easement can reduce the value of land upon which estate taxes are calculated. Please ask Central Colorado Conservancy for materials that explain the details of current state and federal rules.
Donating a Conservation Easement to Central Colorado Conservancy
Steps to Success
This document outlines the process for donating a conservation easement. The land trust staff will guide you through the process and are always happy to answer questions. It typically takes 8-12 months to complete a conservation easement donation.
- Considering a Conservation Easement
Review the materials given to you by Central Colorado Conservancy. A conservation easement is a legal contract between a landowner and a nonprofit land trust or government entity that places permanent restrictions on the development of the landowner’s property. Talk with your family, your legal counsel, and financial advisor about conservation easements. Make a list of the questions you have for our staff.
- Meeting with Central Colorado Conservancy
Meet with Central Colorado Conservancy staff to discuss the specific land to be donated, your thoughts about what you would like to see as the future use of the land, and conservation easements in general.
- Site Visit and Acceptance of the Easement Project
Representatives of Central Colorado Conservancy will visit your land and talk with you about how your property may or may not meet the legal criteria for conservation easements. The U.S. Internal Revenue Service and the Colorado Department of Revenue both have specific criteria for qualifying land for a conservation easement. The easement must protect recognized conservation values, which include wildlife habitat, scenic open space, and agriculture, among others.
During the site visit, Central Colorado Conservancy’s members will also want to see known survey pins on the property. Maps or plats are also helpful, if you have them. The site-visit team will write a recommendation to either accept or reject a potential conservation easement on your land. This recommendation is submitted to the Central Colorado Conservancy Land Committee for their decision on whether to move forward or not with accepting your donation of a conservation easement.
After the Land Committee accepts your easement project, the Central Colorado Conservancy staff will help you work through the process of donating a conservation easement tailored to your land. Final acceptance of the conservation easement is conditioned on successful completion of all of the steps below.
- Prepare the Conservation Easement
You and your attorney will need to review the Central Colorado Conservancy model Deed of Conservation Easement. This agreement between the landowner and the Conservancy describes all of the permitted and prohibited uses of the land under easement, as well as the process and remedies for any future violations of the agreement. For the donation of this conservation easement to be tax deductible, the easement must comply with Section 170 (h) of the Internal Revenue Code and applicable sections of the Colorado Revised Statutes. It is critical that this document receives you and your lawyer’s full attention. Please allow plenty of time to discuss any possible changes with Central Colorado Conservancy staff, who will help create an easement suited to your property. To maximize efficiency, it is important that you and your lawyer use the Central Colorado Conservancy model easement as the basic document and redline requested changes to that document.
- Determine the approximate value of the Conservation Easement
A qualified appraisal of the conservation easement’s value is required by the IRS for the conveyance of the easement to qualify as a charitable contribution (for gifts valued at more than $5000). The appraisal establishes the monetary value of any charitable contribution and also will determine the Colorado state income tax credit. The appraisal must be completed by an appraiser who is qualified to prepare easement appraisals and uses Uniform Standards of Professional Appraisal Practice (USPAP). The appraisal is subject to review by the IRS and the state Division of Real Estate. The easement donor, not the land trust, is responsible for substantiating the value of the donation.
If appropriate, the appraiser may prepare a preliminary appraisal to be reviewed by you and our organization. The final appraisal must be dated no earlier than sixty (60) days prior to the conveyance of the easement and no later than your regular tax filing deadline. Central Colorado Conservancy will request a copy of the appraisal and will not knowingly participate in easement projects where it has significant concerns about the tax deduction. Central Colorado Conservancy will review the final appraisal for compliance with the “Appraisal Guidelines for Conservation Easements.” The cost of the appraisal will be your responsibility.
- Sign the Central Colorado Conservancy Letter of Intent
You, the Landowner, must sign the Central Colorado Conservancy Letter of Intent and pay a non-refundable $3,500. This fee helps cover the land trust’s operating costs, staff time, and legal review by the organization’s attorney. Conservation easements that are unusually complicated may incur additional costs that will be billed to the landowner prior to closing. Phased conservation easements will require a $3,500 fee at the beginning of each phase.
- Gather required documents and order reports
Documents: Gather all of your documents that pertain to the property, including: deeds, title documents, survey maps, existing title insurance policy or a current title commitment, adjudicated water rights, leases on the property, current mortgage, and any other descriptive materials about the property.
Title Commitment and Insurance: Central Colorado Conservancy will require a “To Be Determined” Title Commitment, which will identify any known exceptions to the title, including any liens, access easements, severed mineral rights, or other conditions. Central Colorado Conservancy will require a Title Insurance Policy to protect the organization from losses due to any unrecorded defects in the title that the title company failed to find or any mistakes in the title commitment.
Survey: Central Colorado Conservancy will review the legal description of your property in the Title Commitment to determine whether a survey is necessary to complete the project. If a survey is necessary, the cost will be your responsibility.
Mortgage Subordination: If a mortgage exists on the property, you must obtain a mortgage subordination document from the lender. The subordination document states that the bank accepts that the mortgage is junior in priority to the conservation easement. Generally, if the appraisal shows that the value of the land after the easement is greater than the mortgage amount, banks are willing to subordinate the mortgage. It is better to start this subordination process early, since banks may take six to eight weeks to review and approve the documents. Central Colorado Conservancy can provide sample documents, if the lender does not have their own form. We can also help explain this process to an inexperienced lender. If the lender will not agree to subordinate the mortgage, you may consider refinancing with another lender that will agree to these terms. Central Colorado Conservancy will not accept the conservation easement without a mortgage subordination.
Baseline Report: Retain a baseline expert to prepare a baseline report describing the condition of the property at the time the easement is conveyed. The report should include an inventory and report of the values and biological resources that support the conservation of the property; the characteristics, current use, and status of improvements on the property; and supporting maps and photographs. The report serves two purposes: 1) it is a requirement of the IRS to document the physical and environmental condition of the property at the time of conveyance of the easement; and 2) it is the benchmark against which any future violations of the terms of the easement are measured.
Mineral Report: Central Colorado Conservancy will review the Title Commitment to determine the ownership of the mineral rights for the property. If you do not own 100% of the mineral rights on or under the property, the IRS requires that a “mineral remoteness” letter be prepared. This letter must indicate that the probability of extraction or removal of minerals from the property by surface mining by a third party is “so remote as to be negligible.” This report needs to be prepared by a professional, certified geologist, and the cost of preparing the report will be your responsibility.
Legal and Accounting Review: Retain an attorney to review the conservation easement and all associated documents. Ask your accountant to calculate the federal tax deductions, state tax credits, and potential estate tax benefits of executing the easement. Ask him/her to prepare Form 8283 for submission with your federal tax return after the Deed of Easement has been recorded.
State Tax Credit Broker: If you intend to sell your state tax credits for cash, you likely will need to employ a tax credit broker. It will be important to have a conversation with the broker so that you can understand this process. Brokers generally assist with the complicated process of obtaining the Colorado state tax credit, as well as selling the credits.
Land Management Plan: If you anticipate grazing on the land in the future, you must prepare a management plan based on the instructions and example we will provide.
- Acceptance of the Conservation Easement and Documentation by Central Colorado Conservancy
A copy of the entire package of Deed of Conservation Easement, Baseline Report, Mineral Report, Appraisal, and Land Management Plan is submitted to the Central Colorado Conservancy Board for final acceptance. The board will vote for final acceptance or rejection at this time. Clearly, if the Deed of Easement has already been agreed to and the accompanying documentation is present, acceptance should be assured.
- Closing and completing final forms
- Sign the Deed of Conservation Easement and provide Central Colorado Conservancy the recording fee. Central Colorado Conservancy will then record the deed with the county clerk, retain a copy, and send a copy to you.
- Make the required Stewardship Endowment payment to Central Colorado Conservancy.
- Complete (with your appraiser and accountant) IRS Form 8283 for Non-Cash Charitable Contributions. Central Colorado Conservancy will sign Form 8283 only after all other information, including the appraiser’s information and dated signature, is complete. If Central Colorado Conservancy believes that no gift has been made or if the property has not been accurately described on the form, Central Colorado Conservancy will decline to sign Form 8283. You may wish to consult IRS Publication 526 Charitable Contributions and IRS Publication 561 Determining the Value of Donated Property.
- Complete the required Colorado Department of Revenue forms, including: DR 1303, 1304, 1305.
- Work with your tax credit broker to obtain a state tax credit certificate and to sell your credits.
- Annual Monitoring
Each year Central Colorado Conservancy will monitor the property to make sure that the terms of the conservation easement are being upheld. Central Colorado Conservancy will contact you before entering the property. Please contact us if you have questions regarding the conservation easement or are concerned about a possible violation.
And Finally…… Celebrate!
Enjoy the fact that you have helped protect the natural, agricultural, scenic, or historical resources of the Upper Arkansas River Valley. This is a great gift to future generations.
Tax Benefits of Conservation Easements
A Brief Introduction to a Complicated Topic
Landowners who donate a conservation easement to Central Colorado Conservancy can claim a federal tax deduction of up to 50% of the donor’s adjusted gross income in any year, or up to 100% for eligible agricultural producers. The donor may carry forward any unused deduction for up to 15 years after the year of the donation until the deduction is fully used (i.e., the donor will have a total of 16 years in which to claim the deduction). A conservation easement may also reduce estate taxes, when the land is passed along to heirs. Please consult IRS Publications 526 and 561 for more information about charitable deductions for donating conservation easements.
Colorado State Tax Credit
Colorado offers a generous tax credit program for landowners who donate conservation easements. The credit is available to individuals or entities that pay Colorado income tax or to qualified LLCs. Colorado’s tax regulations are a little complicated, but basically you can receive a tax credit of 75% of an easement’s value for the first $100,000 in value, and 50% of the value after that, up to a maximum of $1.5 million in tax credits for an easement worth $2,950,000. You can use these credits against your state income tax bill or you can sell them, usually for 80%-85% in cash. For example, if you donated a conservation easement valued at $1 million, you would receive $525,000 in state tax credits, which you could likely sell for at least $420,000. If landowners retain the tax credit for themselves, the credits may be carried forward to pay Colorado income tax for up to 20 years. In a year of state budget surplus, landowners can also get up to $50,000 in cash refund for the credit. Please visit taxcolorado.com and go to “FYI Income 39” for the Colorado Department of Revenue’s latest explanation of the state tax credit.
Estate Tax Benefits
The donation of an easement, whether during a landowner’s lifetime or in their will, can reduce the value of the land upon which estate taxes are calculated. Reducing the tax burden through a conservation easement can help ensure that heirs do not have to sell the property to pay estate taxes.
Example of Federal Income Tax Deduction and State Tax Credit
The appraised value of Ruby Jones’s easement is $1 million. If her federal adjusted gross income for the year of the easement donation is $50,000, she would be able to deduct $25,000 in the first year because she qualifies for a 50% deduction under current tax law. Since the value of the easement is greater than the allowable deduction, Jones will be able to deduct $25,000 for each of the next 15 years (assuming a constant adjusted gross income of $50,000). Her total federal deduction would be $400,000.
If Jones is a Colorado taxpayer or if the landowner is a qualified entity, this donation also qualifies for a $525,000 Colorado State Income Tax Credit. If Jones does not use these credits for her own state taxes, the credits can usually be sold for about 80 – 85% of their face value. Sale of the credits could generate at least $420,000 in cash income.
This information is current for the 2014 tax year. Tax laws are subject to change by the US Congress and the state legislature. Please consult your tax advisor to evaluate your unique tax situation.
For a model conservation easement, download the PDF — central-colorado-conservancy-ce-model-nov-2016