Conservation Tax Credit Transfer, LLC
7057 Parfet Street, Arvada, Colorado 80004
Office: 303-424-1616 Fax: 303-424-0319
E-mail: carl@taxtransfer.net, sheakd@comcast.net
www.taxtransfer.net
New Legislation: How It Impacts Landowners Making a Conservation
Easement Donation in 2007
Changes to Federal Deductions
Changes to the Colorado Gross Conservation State Tax Credit
The Pension Protection Act of 2006 (PPA) changed the tax incentives for the charitable donation
of Conservation Easements. The act was signed by the President on August 17, 2006 and
affected Easement donations for both 2006 and 2007. Federal incentives are tax
DEDUCTIONS.
On January 31st, 2007 Senator Max Baucus (D-MT) introduced, and Senator Charles Grassley
(R-IA) co-sponsored, Senate Bill 469, a bill that would make the newly expanded tax incentives
permanent. Representatives Mike Thompson (D-CA) and Dave Camp (R-MI) introduced a
parallel bill, HR1576, in the House on March 19th. President Bush endorses making these tax
incentives permanent. His Cooperative Conservation Task Force released news that the
President’s budget will include a provision to make them permanent.
Colorado’s conservation incentives are tax CREDITS. The tax credit program started on
January 1, 2000. The maximum credit available for a conservation easement donation was
$100,000. The program expanded to a maximum credit of $260,000 on January 1, 2003. With
the passage of HB 1354, as of January 1, 2007, the credit is 50% of the first $750,000 of
Conservation Easement value, up to a maximum credit of $375,000.
In Colorado, the Majority Leader of the House Alice Madden introduced House Bill 1361 in the
State Legislature. HB 1361 passed both the House and Senate and was signed by Governor
Ritter on May 24, 2007. This measure seeks to increase the accountability and transparency of
the Colorado State conservation tax credit program. There have been reports that there may be
taxpayers abusing the incentives by claiming credits based on inflated appraisals and using
questionable conservation values. House Bill 1361 requires more information from taxpayers,
holders of easements and appraisers, as well as improving state record-keeping of lands under
easements.
This public/private approach to conservation allows landowners to participate in conservation
without having to shoulder most of the economic burden. In addition, it allows the public the
opportunity to preserve land without having to purchase it at full value and having to manage it
in perpetuity. Conservation Easements can keep the land in productive agriculture and allow
professional agricultural management to continue.
So what does this mean to you, the landowner? Some examples follow to illustrate these
expanded incentives. These examples are simplified in order to illustrate the potential. They are
not intended to be a substitute for competent, professional legal or tax advice. Landowners
contemplating donations of Conservation Easements for Federal and Colorado State tax benefits
are urged to seek their own council.
Colorado State Conservation Tax Credits are fully transferable. Landowners can use the credit
themselves, carry the credit forward for a period of up to twenty years, or choose to sell their
credit at a discount in order to receive the money now. Tax credits have been transferred and
sold at a discount over the last several years based upon a “going market rate”, which has
changed over time. Initially credit transfers returned 80% to the landowner, meaning a
landowner could expect to receive $80,000 if he/she sold a $100,000 credit. Last year the “going
market rate” was 82%, which gave the landowner $213,200 for transferring a $260,000 credit.
This year the rate is 83%, and the following illustrations are based on the 83% transfer rate. In
addition, Conservation Tax Credit Transfer, LLC has placed a cap on our transaction fees
for all credit transfers above $300,000. This places up to $3,750 back in your pocket as
illustrated below:
Note: Any donation above $750,000 yields the same amount of Colorado Tax Credit.
CE
Value
Amount of
Credit
Cash
at Transfer
$250,000
$450,000
$650,000
$700,000
$750,000
$950,000
$125,000
$225,000
$325,000
$350,000
$375,000
$375,000
$103,750
$186,750
$269,750
$290,000
$311,250
$311,250
Transaction
Cap Bonus
$1,250
$2,500
$3,750
$3,750
Total Landowner
Cash at Transfer
$271,000
$293,000
$315,000
$315,000
Note: If you have a bargain sale transaction (e.g. if Great Outdoors Colorado (GOCO) provides
$100,000 in cash as part of the purchase price), the calculation subtracts the $100,000 from your
Conservation Easement (CE) value as illustrated below.
CE
Value
GOCO
Cash
Net CE
Value
Amount
of Credit
Cash to Landowner
at Transfer
$450,000
$650,000
$850,000
$950,000
$100,000
$100,000
$100,000
$100,000
$350,000
$550,000
$750,000
$850,000
$175,000
$145,250
$275,000
$228,250
$375,000
$315,000*
$375,000
$315,000*
*includes transaction cap bonus
The Federal deduction has also changed dramatically. The calculations are more variable than
the Colorado calculations because they involve a landowner’s gross income and deductions as
part of the calculation. The deductions also change significantly based upon whether a
landowner is a “qualified farmer or rancher”. Qualified farmers and ranchers can take the
deduction on 100% of their Adjusted Gross Income (AGI) for the year of the deduction and carry
that deduction forward 15 years. Other individuals can take the deduction on 50% of their
Adjusted Gross Income (AGI) for the year of the deduction and carry that deduction forward 15
years. (The old law used 30% of AGI, with a carry forward of 5 years and did not differentiate
between individual landowners and farmers/ranchers). Corporations and partnerships also have
increased benefits. Please call our office or your tax and legal advisors for more information.
Below are some calculations for 2007 (and beyond if pending legislation passes) based upon a
series of changing assumptions. These assumptions assume no other deductions. Again, these
are only for illustration purposes. Your own tax and legal advisors should be consulted
regarding your specific situation.
Individual Landowner Calculations:
CE
Value
$500,000
$500,000
$750,000
$750,000
AGI
$ 50,000
$100,000
$ 50,000
$100,000
*CE
Deduction
$
$
$
$
25,000
50,000
25,000
50,000
Annual
Deduction
$
$
$
$
25,000
50,000
25,000
50,000
**Total
Deductions
$400,000 ($
$500,000 ($
$400,000 ($
$750,000 ($
25,000 x 16)
50,000 x 10)
25,000 x 16)
50,000 x 15)
* The Conservation Easement (CE) deduction is taken at 50% of Adjusted Gross Income (AGI).
** Total deductions equal the sum of the deduction for the year of donation plus the carry forward years.
“Qualified Farmer or Rancher” Calculations:
CE
Value
$500,000
$500,000
$750,000
$750,000
AGI
$ 50,000
$100,000
$ 50,000
$100,000
*CE
Deduction
$ 50,000
$100,000
$ 50,000
$100,000
Annual
Deduction
$ 50,000
$100,000
$ 50,000
$100,000
**Total
Deductions
$500,000 ($ 50,000 x 10)
$500,000 ($100,000 x 5)
$750,000 ($ 50,000 x 15)
$750,000 ($ 100,000 x 7) and
($50,000 x 1)
* The Conservation Easement (CE) deduction is taken at 100% of Adjusted Gross Income (AGI).
** Total deductions equal the sum of the deduction for the year of donation plus the carry forward years.