Both the Federal Government and State Government have created vehicles to help ranchers and conservationists work together by providing tax breaks. The Feds allow a Schedule A charitable
contributiondeduction and the State of Colorado offers a tax credit where the credit goes against the taxes owed, dollar for dollar. Ranchers who partake in the program receive, in some cases, very large tax benefits for preventing development on their land.
In the case of the State Tax Credit, it is very unlikely the rancher will be able to take advantage of the credits he will have because he will unlikely have state taxes in the amounts the credits will provide. To remedy this, the State has allowed owners of the credits to sell them to folks that can take advantage of them. These credits are sold by brokers at a discount to the buyers who then apply them against the taxes they owe. This discount is in the range of 12% ro 15%.
So, for example, say you owe the state $20,000 in taxes. You would buy $20,000 of tax credits from one of the ranchers in the conservation program at a discount of 15%. So, you would pay the rancher $17,000 for the credit saving you $3,000 in taxes. The rancher would then pay the broker 5% and receive $16,000.
As you can see, this is a win-win situation for the tax paying buyer and the rancher. The buyer pays less in taxes and the rancher is able to monetise this credit.
The broker is paid to facilitate the transaction and make sure both the rancher and buyer of the credit have all their documentation in order.
In the early days of the program there were some problems that arose when some transactions were submitted with poor appraisals and dubious easements. All of those bad situations have been cleared up now because of some hard work by the conservation community, the State, and the appraisers doing the appraisals of the easements. As long as you, as a buyer, stick with the well known conservation entities like the Cattlemen's, you will have nothing to worry about.
When I say, nothing to worry about, I mean that there is always the possibility that these credits and the entities involved may have their transactions reviewed. We have done three of these easements and have had one review. In that case it was merely a misunderstanding of the State forms. Which, I might add, was a situation where we filled out the form correctly and the State agreed after a short explanation. I think they finally understand how the form should be filled out ; )
As I have told buyers of our credits, this is not only a way for you to save money on your State taxes, it is also a way for you to help preserve the lands and the heritage of the west for future generations.