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Tax credit shift could affect conservation easements

A change in the Colorado Conservation Easement Tax Credit approved in April could adversely affect local easements established over the next three years. The modification, however, will not inhibit those completed in 2010.

According to Southwest Land Alliance Executive Director Michael Whiting, the Colorado Legislature approved House Bill 10-1197 (HB 10-1197) this spring, with Gov. Ritter signing it into law April 29.

Essentially, the legislation places a $26 million annual cap on the entire state conservation easement program, with total allotted tax credits of $78 million available between Jan. 1, 2011 and Dec. 31, 2013. While the current maximum tax credit of $375,000 still applies, credits will be awarded on a first-come, first-served basis among easements completed after Jan. 1, 2011.

Once the $26 million threshold is met, landowners completing easements within the same year will receive certificates for tax credits in 2012 or 2013. Whiting believes it conceivable, however, that the full $78 million could be spoken for, even before the end of 2011.

“The difference (cap) will make it a foot race for the fixed number of dollars in the program,” Whiting said in a recent phone interview.

Attorney Bill Silberstein of Isaacson Rosenbaum P.C. (Denver) added that the new cap will represent an approximate 50-percent reduction in the number of annual credits claimed in Colorado over the last several years.

Modern regulations for any single conservation easement allow a federal income tax deduction of up to $750,000 applied to 100 percent of a landowner’s adjusted gross income over a period of up to 15 years. Colorado, meanwhile, allows the maximum state income tax credit of $375,000, which is transferable or sellable at about 82 cents on the dollar. At best, Whiting said, that equates to a little more than $300,000 in cash for the landowner.

Further, conservation easements on parcels exceeding 80 acres permanently freeze corresponding property taxes at the “agricultural rate,” regardless of whether agricultural activities actually continue. Existing regulations are the same as those applicable to 2008 and 2009, and govern all Colorado conservation easements.

Again, with the cap taking affect at the beginning of next year, landowners completing easements prior to the end of this year will receive tax credits relevant to their qualifications. Property owners considering easements in 2011, however, should plan on concluding them as soon as possible, to increase the likelihood of claiming, using or selling their respective tax credits that year, if at all.

Conservation easements are typically managed by land trusts such as the Southwest Land Alliance (SLA). The SLA is a local 501(c)(3) nonprofit dedicated to assisting people who wish to protect their land from subdivision and development. In the past, Whiting has said, “One of the marks of a thriving community is a healthy land trust.”

Founded in 1981, the SLA serves private property owners and communities in Archuleta, Mineral and Hinsdale counties. It does so by providing clear and concise information about private land conservation options and benefits for landowners and the broader community.

SLA board vice chair Penny Holmes insists, “Land trusts, especially the SLA, are not anti-development, we are a tool for conscientious land development and smart growth. Conservation easements are an option, they are not ‘takings,’ and each easement is tailored to the particular needs and desires of the landowner.”

Holmes added that not all easements are placed on large parcels of land. “We work with a lot of smaller landowners and ranchers, as well.”

Whiting describes a conservation easement as the closest thing to perpetual land protection available. Landowners donate a conservation easement by voluntarily placing deed restrictions on their property, which stays with the land forever. Landowners benefit by tax credits, while communities enjoy the preservation of views and open space. Former SLA board chair Nancy Cole once said, “This is a private act with community-wide implications.”

Whiting suggests easements are best understood when thinking of land ownership as owning a “bundle of rights.” Such rights include water rights, mineral rights, subdivision and development rights — anything you can legally do with the land.

An easement, however, is a second deed placed on land, which either allows or restricts access, or certain activities. It may preserve or prohibit a specific property right, or it may grant certain uses by non-owners.

A utility easement, for example, prevents a landowner from constructing improvements on a defined piece of land, yet allows public utility companies to install electric, water, sewer, or phone lines above or beneath it.

Conservation easements are based on similar principles, but differ in their consideration of certain intrinsic values associated with the land, and how property rights might negatively impact them. Referred to as “conservation values,” they include such things as the worth of agricultural use, open space and view corridors, wildlife habitat, and watershed protection.

Ultimately, a trained real estate appraiser will determine the value of all relevant property rights and the easement itself, from which state tax benefits are finally calculated.

In the meantime, a Stewardship and Legal Defense Endowment provides land trusts some funding for annually monitoring and maintaining conservation easements, but trusts also rely on generous donations from members or organizations within their particular communities. With the recent economic downturn, though, contributions to the SLA have fallen of late, forcing the land trust to consider restructuring.

The timing may be about right, however.

While the SLA has enjoyed two paid staff over the past five years, Whiting is now running for a seat on the Archuleta County Board of County Commissioners and will soon step down as executive director. Though he’ll also move to an SLA board position, the land trust hopes to further expand its board of directors by adding two more willing volunteers. Land Stewardship Coordinator Karin Freeman, meanwhile, will remain as the SLA’s single staffer.

To date, Whiting said the SLA manages over 18,000 acres in area conservation easements, after having established easements on more than 24,000 total acres. The SLA has since delegated management of some 6,000 acres to another regional land trust.

Anyone interested in assisting the SLA should attend a silent auction at the Wild Spirit Gallery, at 5 p.m., July 23. For more information on the alliance and its work, visit “Saving the Ranch” at the East Fork Ranch, from 1 to 4 p.m., Aug. 28. An annual members picnic will follow.

To visit with the Southwest Land Alliance directly, its office is located at 450 Lewis St., Pagosa Springs. You can also call Whiting (for now), or Freeman at 264-7779.