2023 Tax Credit Cap Fully Reserved
The Division of Conservation has reserved the full $45 million in tax credits for conservation easements donated in 2023. This is courtesy of the enhanced incentive provided by legislation in 2021 and a rise in the number of applications for the tax credit. Although the annual cap has been completely reserved, up to $15 million of the annual cap for each future year may be allocated to conservation easements donated in 2023 pursuant to C.R.S. 39-22-522(2.5). This so-called "wait list" provides for tax credits to be issued from the next year's cap, for use beginning in the next year. In this way, eligible taxpayers may continue to apply for the tax credit after the annual cap has been reached. The process for issuing tax credits will not change. Applications will continue to be processed in the order received. Tax credit certificates will continue to be issued, regardless of the cap year, without additional delay. The amount of each annual cap that has been allocated to "wait list" credits is presented in tax credit cap table on the Division's homepage.
A conservation easement is a voluntary legal agreement to restrict use of a property. Typically, development is limited or prohibited in order to forever protect and preserve conservation values, such as natural habitat, open space scenic views and agriculture, and outdoor recreation and education. The conservation easement is recorded in the public record and is enforced by the holder of the conservation easement. A conservation easement that is donated may qualify as a charitable contribution eligible for Colorado's state income tax credit.
A tax credit certificate is a document issued by the Division of Conservation that allows a landowner who donated a conservation easement to claim a tax credit on their state income tax. The tax credit is not a tax deduction, but rather a dollar-for-dollar reduction of state income tax liability. Moreover, the tax credit certificate is transferable and can be sold. For conservation easements donated in 2021, tax credit certificates are issued for 90% of the donated value up to a maximum of $5 million per donation. For conservation easements donated in 2015-2020, tax credit certificates are issued for 75% of the first $100,000 of donated value and 50% of any remaining donated value up to a maximum of $5 million per donation. Credits in excess of $1.5 million are issued in increments of up to $1.5 million per year in future years.
The tax credit certificate application process ensures that conservation easement donations meet the requirements of a qualified conservation contribution under section 170(h) of the Internal Revenue Code and are supported by a qualified appraisal prepared by a qualified appraiser. Importantly, the qualifications of donations are assessed before a tax credit certificate is issued. As a result, the risk of the tax credit ever being disputed is greatly minimized, however the issuance of a tax credit certificate by the Division does not restrict the authority of the Department of Revenue to reject a tax credit claim based upon tax compliance matters.
The authority to approve or deny tax credit certificate applications is vested with the Conservation Easement Oversight Commission and the Director of the Division of Conservation. Examinations must be completed in 120 days. Please see the fees page for the current tax credit certificate application fee.
Disclosure of Perpetuity
To be eligible for the Colorado state income tax credit, conservation easements must be donated in perpetuity. To demonstrate that this is understood, and pursuant to section 38-30.5-103(6) C.R.S., landowners that grant a conservation easement on and after January 1, 2020 must execute a disclosure form that acknowledges that the conservation easement is being granted in perpetuity. The form must be signed prior to creating the conservation easement and the signed form must be submitted as part of the tax credit certificate application.
Tax Credit Transfer Tracking
Transfers of conservation easement tax credits issued for use on or after January 1, 2021 must be reported to the Division of Conservation. Pursuant to section 39-22-522(3.5)(b)(II) C.R.S., the transfer agreement between the transferor (seller) and transferee (buyer) must be filed with the Division within 30 days after the date of the transfer. The Division must track transfers of tax credits and certify ownership of tax credits, and, upon approval, issue a new certificate to the transferee and, if any amount is retained, to the transferor, to be claimed with the Department of Revenue.