How Can Conveying a Conservation Easement Reduce Taxes?
To qualify for federal and state tax benefits, a conservation easement must be donated in perpetuity to a qualified conservation organization “exclusively for conservation purposes,” and satisfy the “conservation purposes test”. “The value of a qualifying conservation easement can be deducted from federal income. The value of a qualifying conservation easement can be deducted from federal income and used as a credit against Colorado income tax. The easement can also result in an estate tax reduction and estate tax exclusion. Conservation easements can reduce property taxes as well. Consult a tax and legal advisor familiar with the benefits for more details.
History of the Colorado Tax Credit Program
Non-agricultural lands protected by conservation easement may qualify for reduced property taxes as well, since the easement restrictions generally reduce land value. This is not always the case, however, and an easement donor’s tax bill will ultimately depend upon the local tax assessor’s judgment of the diminution in value caused by the easement restrictions.
In Colorado agricultural land that is taken out of production is reclassified as “vacant land,” causing property taxes to increase astronomically. High property taxes on vacant land have forced many landowners to sell their land for development. In 1995 the Colorado Legislature passed House Bill 1268, modifying property tax law to encourage land conservation. HB 1268 allows farmers and ranchers who have protected their land from development with a permanent conservation easement to take their land out of production without losing their favorable agricultural property tax classification. To qualify for the agricultural property tax benefit, the subject property must be 80 acres or larger (smaller if there are no structural improvements) and must be classified as agricultural at the time of the gift of easement.
The law does not encourage cessation of agriculture. Instead, it enables the preservation of precious farm and ranch land by giving farmers and ranchers an option they did not previously have – the option to retire or to suspend an operation due to market, natural, or other conditions. The law does not adversely take land off the tax rolls or reduce tax revenue from affected lands.