Conservation easements aren’t a new concept in the West. The state of Colorado launched a program in 2000 that enabled landowners to donate land to a certified land trust or government agency to earn federal tax deductions and state tax credits.
Easements deliver myriad benefits, chief among them the protection of open space, working ranches, and ecologically significant areas, all while creating a financial benefit for those donating the easement. And as I’ve noted before, Colorado is unique in that our state laws allow the landowner donating the easement to either use the tax credit for themself or sell the credit to a third party.
A History of Conservation in Colorado
The early years of the Colorado program presented challenges for landowners, many of whom were denied the tax credits due to wildly unrealistic valuations developed by unsavory promoters looking to exploit the system. According to Colorado Politics, out of the 4,000 easements granted between 2000 and 2013, about 800 were denied tax credits. Those denials forced some landowners into foreclosure and bankruptcies.
The state responded by more closely regulating easements through the 2018 creation of the Division of Conservation. The abuse and increased regulation, however, created a chilling effect on conservation. Although the state annually budgeted $45 million in tax credits for easements starting in 2014, many years saw as little as $10 million of the credits claimed.
Clearly, the program needed to evolve to enable the conservation of more land. And there was an increasingly urgent need for that change to come soon. How urgent? The American Farmland Trust reports that 175 acres of farmland are lost every hour in the United States — about 3 acres per minute.
Legislation Leads the Way
Enter Colorado House Bill 1233, passed in 2021. The legislation was spearheaded by a coalition of non-profit conservation organizations in the state. Highlights of the new program include:
- Expansion of the entities eligible to donate a conservation easement to include specific types of water entities;
- Changes to the tax credit formula that allow those donating an easement to receive up to 90% of the value of their easement in tax credits, increasing the incentive for landowners to permanently protect more critical landscapes;
- More efficient tracking and verification of tax credit certificates within the state’s Department of Revenue and a more effective process for landowners.
A Leader in Conservation
The bill has been enormously successful in encouraging conservation. Leadership at the Colorado Cattlemen’s Agricultural Land Trust (CCALT), which has partnered with nearly 400 families since 1995 to conserve more than 705,000 acres of Colorado ranch land, confirmed there has been a strong uptick.
“We’re currently working on more than 40 active conservation projects across the state representing more than 100,000 acres,” says Erik Glenn, CCALT Executive Director. “Over the past 12 months we have seen interest in conservation easements grow because of the changes made in 2021 to Colorado’s conservation easement tax credit program. Landowners are increasingly looking at conservation easements as a tool to pay down debt, diversify revenue streams, or to expand their operations. As a result, CCALT has increased its staff to better serve landowners interested in exploring conservation easements on their farms and ranches.”
The growth in interest also has been significant on the state level. The Colorado Division of Conservation reported in February that it had reserved the full $45 million in tax credits for conservation easements donated in 2021. That’s the first time all the credits have been completely reserved since the $45 million cap was created in 2014.
Which is not to say the window has closed on easements donated in 2021. The state notes that “although the annual cap for 2021 has been completely reserved, $15 million of the annual cap for 2022 is available for conservation easements donated in 2021. 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.”
Colorado Landowners and Future Ranch Buyers
So what does that mean for those who currently own a ranch in the West – or thinking about investing in a ranch? If you’re a Colorado taxpayer, the new law will enable landowners to conserve their land and water and get an even greater reduction in their income tax expense.
That credit is significant. Consider: Under the new legislation, tax credit certificates for conservation easements donated in 2021 are issued for 90% of the donated value, up to a maximum of $5 million per donation. Under the previous guidelines, a donated easement worth $1 million would max out for a credit worth $525,000; but now that potential credit has increased to $900,000.
And while the laws vary across the West, Colorado is far from the only state with a conservation easement program. Other states in the region with similar programs include Wyoming, Utah, Montana, Idaho, and New Mexico, the latter of which also has ‘transferable’ credits.
It’s important to remember that any conservation tax credit system is complex, and you should always consult with experts. At Mirr Ranch Group we have extensive experience guiding landowners through the entire conservation process, so contact us if we can be of assistance.
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