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CCALT: Costs and Benefits of Conservation Easements
THE COSTS AND BENEFITS OF CONSERVATION EASEMENTS
Several governmental entities (federal, state, and local) and private organizations have established
financial incentives to encourage landowners to conserve their lands. These incentives include cash
payments and various tax incentives and have been used by landowners to diversify or expand their
operations, pay down debt, pay for healthcare costs, and save for retirement. While financial incentives
are an important motivator for catalyzing conservation, there are other non-financial benefits to
conservation. This document has been developed to provide landowners with information related to the
financial and non-financial benefits and the costs of conveying a conservation easement.
Benefits – Financial
There are basically five (5) types of financial benefits that can accompany a conservation easement, (1)
federal tax deductions; (2) estate tax benefits; (3) Colorado state tax credits; (4) property tax benefits; and
occasionally, (5) cash payments. Each financial benefit is explored in detail below.
Federal Tax Deduction
A conservation easement may be treated as a charitable gift, making the value of the easement tax
deductible. The federal tax incentive for conservation easements was recently impacted by new IRS rules
regarding state and local tax deductions. The revised federal tax incentive allows a landowner to deduct
the easement’s value less the value of any state tax credits received up to fifty (50) percent of his/her
adjusted gross income, with a fifteen (15) year carry-forward period. Qualified farmers and ranchers are
allowed to deduct the easement’s value up to one hundred (100) percent of their adjusted gross income
with a fifteen (15) year carry-forward period.
Estate Tax Incentive
Another important tax benefit is the reduction of estate taxes. By granting away development rights the
value of the land is decreased, which lowers the value of the land for estate tax purposes, and can provide
a significant reduction in the estate tax burden on family members. In addition to this decrease in value,
qualified conservation easements can earn an additional $500,000 estate tax exemption.
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CCALT: Costs and Benefits of Conservation Easements
Colorado State Tax Credits
Donors of conservation easements are eligible for conservation easement tax credits under Colorado law.
These are credits that may be used against Colorado state income taxes owed. Conservation easement
tax credits may be used by the donor over a 20 year period, transferred to other Colorado taxpayers, or,
in years of budget surplus, refunded by the State to the donor. Donors of conservation easements can
receive tax credits at the rate of 75% of the first $100,000 of the value of the conservation easement and
50% of the remaining conservation easement value up to a total credit amount of not more than $1.5
million per calendar year and a total transaction cap of $5 million. For example, a $2,000,000 donation
will yield $1,025,000 in state income tax credits ($75K of the first $100,000 plus 50% of the remaining
$1,900,000.The maximum credit allowed per calendar year is $1.5 million
, which is generated by a
donation of $2,950,000 or more). In a second example, a donation of $5 million dollars would generate a
tax credit of $2,525,000. The donor would receive $1.5 million in credits for the year of the donation and
$1,025,000 in credits for the following year. Credits typically sell for between $0.83 and $0.85 per dollar.
NOTE: Landowners should sell conservation easement tax credits through a reputable tax credit broker.
Brokers work throughout the year to identify buyers and match them with sellers. The State of Colorado
must certify all conservation easement tax credits prior to issuing the credits. To be eligible to receive a
State Income Tax Credit, you must be classified as a taxpayer under Colorado Revised Statute § 39-22-
522(1).
Property Tax Benefits
Under Colorado law, for properties which are classified as agricultural at the time of easement, the
conservation easement will lock in the property tax valuation at its agricultural value. Granting a
conservation easement WILL NOT eliminate property tax burdens and the property will remain on the tax
rolls, and the landowner retains responsibility for any property tax liabilities.
Cash Payments
Occasionally, CCALT is able to raise money from public and private funding sources to purchase a portion
of a conservation easement with cash. This is known as a bargain sale conservation easement conveyance.
Typically, 50% of the value of the easement is purchased in a bargain sale transaction. The remaining 50%
is treated as a donation and compensated through the various tax benefits described above.
Benefits – Non-Financial
Landowners have different reasons for deciding to encumber their land with a conservation easement.
Many of these reasons have nothing to do with financial gain but have everything to do with a landowner’s
conservation ethic and love of the land they work. Landowners consistently state that the benefits of the
conservation easement extend far beyond the pocketbook. These non-financial benefits include the
preservation of Colorado’s agricultural heritage, preservation of the land in its open, productive and
undeveloped state, and preservation of water resources for agricultural purposes. Conservation easements
can also eliminate future family disputes over what to do with property and provide opportunities for
young farmers and ranchers to get a start by allowing them to purchase land at a more affordable price.
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CCALT: Costs and Benefits of Conservation Easements
Costs – Financial
The conveyance of a conservation easement requires the following reports to be produced: (1) a baseline
inventory report documenting the current condition of the property; (2) an appraisal to determine the
value of the conservation easement; (3) a mineral remoteness assessment to determine the likelihood of
mineral extraction; (4) title work; and occasionally, (5) an environmental assessment. In addition to these
costs, there are other fees associated with the conveyance of a conservation easement including a project
coordination fee, stewardship and legal defense endowment contributions, and various legal fees.
Together, these fees typically range from $68,000 to $97,750 for a donated conservation easement
depending on the complexity of the transaction. Bargain sale transactions tend to be more expensive due
to the increased complexity involved with funders and the additional due diligence requirements. The
fees for a bargain sale conservation easement can range from $85,000 to $145,250. A breakdown of the
transaction costs associated with a conservation easement is provided below. Landowners contemplating
a conservation easement should also know that conservation easements can make obtaining a mortgage
more difficult. Landowners should consult with their banks/lenders to determine how they would handle
a subsequent mortgage on a parcel of land encumbered by a conservation easement.
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CCALT: Costs and Benefits of Conservation Easements
SERVICE
AMOUNT
NOTES
Title services & closing costs
Donated: $2,500 - $3,500
Bargain Sale: $2,500 - $4,000
Due at closing.
Colorado Conservation Tax
Credit Certification Fee
$7,000
Cost of the Division of Conservation’s
review and certification of the tax
credits. This fee is set each year by the
state.
Conservation Easement
Appraisal
Donated: $15,000 - $25,000
Bargain Sale: $15,000 - $35,000
Required by IRS for obtaining tax
incentives.
Baseline Inventory
$3,500 - $6,000
Required by IRS for obtaining tax
incentives.
Water Report
$750
Required if all or a portion of the
property is irrigated.
Mineral Report
$2,000 - $2,500
Only required if landowner does not
own all of the mineral rights.
Environmental Assessment
Typically Bargain Sale only:
$2,500 - $5,000
Environmental reports are only required
in a bargain sale situation where the
report is a condition of funding.
CCALT Legal Expenses
Donated: $5,000 - $10,000
Bargain Sale: $10,000 - $25,000
CCALT expects landowners to cover
CCALT’s legal costs.
Your legal fees
$ unknown
CCALT expects landowners to obtain
independent legal counsel.
CCALT Stewardship
Endowment
Donated:$18,000
Bargain Sale: $20,500
Due upon project completion. This fee
may be increased for additional risk
factors.
CCALT Legal Defense Fund
$5,000
Due upon project completion.
CCALT Project Coordination
Fee
Donated: $7,500
Donated w/ transaction cost
assistance: $10,000
Bargain Sale: Tiered depending on
amount raised $17,000 - $29,500
$1,000 will be due up front when the
CCALT Board approves the project. For a
bargain sale, an additional $1,500 is due
at the time the first grant application is
submitted. The remainder of the fee is
upon project completion.
CCA Lifetime Membership
$5,000
Due only if project is completed.
TOTAL RANGE
Donated Conservation Easement: $68,000 - $97,750
Bargain Sale Conservation Easement: $85,000 - $ 145,250
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CCALT: Costs and Benefits of Conservation Easements
Costs – Non-Financial
Conveying a conservation easement can be a long, difficult, and time-consuming process that can cause
stress, frustration, and disagreement amongst family members. This is especially true in bargain sale
transactions which tend to require more restrictions, cost more, and take longer. Moreover, landowners
must consider that conservation easements will restrict certain uses of the property in perpetuity (forever),
tie the hands of future owners, reduce the value of the property and extend the time it takes to sell the
property on the open market.
CCALT has strict confidentiality policies to protect landowners, but oftentimes funders require that
information related to a conservation easement is disseminated to the public and all conservation
easement are recorded in the public records in the county where the property is located. The location of
all conservation easements is also shared with CSU’s COMaP service, which is available to anyone with a
subscription. While both the benefits and costs are important to understand when deciding whether or not
to pursue a conservation easement the decision essentially comes down to answering two questions, (1)
does it make financial sense? and (2) do you believe in your heart that encumbering the property is the
right thing to do? Answering those questions can be difficult, but there are several resources that can help
landowners make the right decision for their land and their family. The CCALT website is full of information
dedicated to helping landowners educate themselves on conservation easements, and CCALT staff
members are more than willing to spend time talking with landowners about the costs and benefits of
conservation easements and can direct landowners to other reputable resources.
For more information or to talk to someone about the costs and benefits or conservation easements in
general, please contact CCALT at 303.225.8677.
