If I claim a refund of Colorado's conservation easement tax credit, is there a cap—and how does it work when a partnership or S corporation made the donation?

Plain-English summary

Colorado gives an income tax credit to a taxpayer who donates a perpetual conservation easement. Normally you can only use that credit to offset tax you owe (or transfer it to someone else) — you can't get cash back. But in years when state revenues run high enough, taxpayers are allowed to claim a refund of part of the credit. This letter explains the $50,000 cap that kicks in only when a refund is claimed, and how that cap works when the easement was donated by a pass-through entity.

The rule is § 39-22-522(5)(b)(III), C.R.S., and it has three sentences the Department walks through:

• First sentence — the cap itself. "If any refund is claimed… the aggregate amount of the refund and amount of the credit used as an offset against income taxes… for that income tax year shall not exceed fifty thousand dollars." So once you claim any refund, your refund + credit-used-to-offset-tax combined can't top $50,000 that year. (Amounts transferred to, or used by, a transferee don't count toward the cap.)
• Second sentence — pass-throughs. When a partnership, S corporation, or similar entity donates the easement as an entity, the same $50,000 cap applies collectively to the refund and credit claimed by all the partners, members, or shareholders together — not $50,000 each. The Department reads "the aggregate amount of the refund and the credit claimed" to mean the same thing as the first sentence's "refund and amount of the credit used as an offset against income taxes."
• Third sentence — no refund, no cap. "Nothing in this subsection… shall limit a taxpayer's ability to claim a credit against taxes due in excess of fifty thousand dollars." If you don't claim a refund, the $50,000 figure does not limit how much credit you can use to offset tax.

In short: the $50,000 ceiling is a refund-year rule. It bundles your refund together with the credit you apply against tax (but not transferred amounts), and for an entity donation it's one shared ceiling for everyone who got a piece of the credit.

What this means for you

Landowners and others who donated a conservation easement

If you're taking a refund of the credit in a high-revenue year, plan around the $50,000 ceiling on refund + credit-you-use-against-tax combined. If you'd rather just apply the credit against your tax and skip the refund, the $50,000 cap doesn't restrict you — you can offset more than $50,000 of tax with the credit.

Partners, members, and shareholders of an entity that donated

Coordinate. When the entity made the donation, the $50,000 refund-year ceiling is shared across all of you, not available per-owner. One owner claiming a large refund eats into the room available to the others.

Accountants and tax professionals

The cap (§ 39-22-522(5)(b)(III)) is triggered only by a refund claim under (5)(b)(I); absent a refund, (4) governs and there's no $50,000 limit on offsetting tax. Transferred credit is excluded from the aggregate. Confirm a Division of Conservation credit certificate was issued (§ 39-22-522(2.5)) before any of this applies.

Common questions

Q: Is there a $50,000 limit on the conservation easement credit?
A: Only when you claim a refund. In a refund year, your refund plus the credit you use to offset income tax cannot exceed $50,000 combined (excluding transferred amounts). If you don't claim a refund, that $50,000 figure doesn't limit how much credit you can use against tax.

Q: A partnership made the donation. Does each partner get a separate $50,000?
A: No. When the entity donates, the $50,000 cap applies collectively to the refund and credit claimed by all partners, members, or shareholders together.

Q: Do credits I transferred to someone else count toward the cap?
A: No. Amounts transferred to, or used by, a transferee are excluded from the aggregate.

Q: Can I rely on this letter?
A: No. It's a General Information Letter — general guidance only, not binding on the Department. A binding answer requires a private letter ruling.

Citations and references

Statutes:
- § 39-22-522(2), (2.5), C.R.S. (conservation easement credit; credit certificate required)
- § 39-22-522(4), C.R.S. (offsetting tax with the credit; not limited absent a refund)
- § 39-22-522(5)(b)(I), C.R.S. (refund allowed when state revenues exceed limits)
- § 39-22-522(5)(b)(III), C.R.S. ($50,000 aggregate cap on refund + offset; collective cap for pass-throughs)
- § 39-22-522(7), C.R.S. (transfer of the credit)

Source

• Landing page: https://tax.colorado.gov/all-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-22-006.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL 22-006
October 17, 2022
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Re: Refund limitation for conservation easement credits from donations made by pass-through
entities
Dear XXXXXXXXXX:
You submitted a request for a general information letter regarding conservation easement credits.
The Colorado Department of Revenue (“Department”) issues general information letters and private
letter rulings. A general information letter provides a general overview of the relevant tax issues, but
is not binding on the Department. A private letter ruling provides a specific determination for a
specific set of facts, is binding on the Department, and requires payment of a fee. For more
information about general information letters and private letter rulings, please see 1 CCR 201-1,
Rule 24-35-103.5.
Issue
This letter discusses the statutory limit for conservation easement tax credits in the event a refund is
claimed for the credit and how that limit applies to a credit allowed for a donation made by a passthrough entity.
Discussion
Colorado allows an income tax credit to each taxpayer who makes a qualifying donation of a
perpetual conservation easement in gross during the tax year.1 The taxpayer may transfer all or a
portion of the credit2 or apply the credit toward the tax they owe, but generally cannot claim a refund
for any part of the credit. However, if state revenues exceed certain limitations, taxpayers may be
allowed to claim a refund for the credit.3
Section 39-22-522(5)(b)(III), C.R.S., prescribes limits that apply if any refund is claimed for the
credit. The first sentence of section 39-22-522(5)(b)(III), C.R.S., establishes the general limitation on
usage of the credit if any refund is claimed:
“If any refund is claimed pursuant to subsection (5)(b)(I) of this section, then the aggregate
amount of the refund and amount of the credit used as an offset against income taxes,
1 Section 39-22-522(2), C.R.S. The credit is allowed only if the Division of Conservation has issued a credit certificate

to the taxpayer. Section 39-22-522(2.5), C.R.S.
2 Section 39-22-522(7), C.R.S.
3 Section 39-22-522(5)(b), C.R.S.

GIL 22-006
October 17, 2022
Page 2
excluding amounts transferred to or used by a transferee, for that income tax year shall not
exceed fifty thousand dollars for that income tax year.”
The statute states unambiguously that the $50,000 limit applies to “the aggregate amount of the
refund and amount of the credit used as an offset against income taxes.”4 If any refund is claimed,
the total combined amount of the refund and the credit applied toward tax cannot exceed $50,000.
The second sentence in section 39-22-522(5)(b)(III), C.R.S., clarifies this application of this limitation
to credits resulting from conservation easements donated by a pass-through entity:
“In the case of a partnership, S corporation, or other similar pass-through entity that donates
a conservation easement as an entity, if any refund is claimed pursuant to subsection
(5)(b)(I) of this section, the aggregate amount of the refund and the credit claimed by the
partners, members, or shareholders of the entity shall not exceed the dollar limitation set
forth in this subsection (5)(b)(III) for that income tax year.”
Read in context, it is clear that “the aggregate amount of the refund and the credit claimed” has the
same meaning as “the aggregate amount of the refund and amount of the credit used as an offset
against income taxes” as stated in the first sentence of section 39-22-522(5)(b)(III), C.R.S. This
provision simply clarifies that the same general limitation established in the first sentence of section
39-22-522(5)(b)(III), C.R.S., applies collectively to all partners, members, or shareholders of the
entity.
The last sentence in section 39-22-522(5)(b)(III), C.R.S., clarifies that the limit it establishes does not
restrict the application of the credit to offset tax if no refund is claimed pursuant to section 39-22522(5)(b)(I), C.R.S.:
“Nothing in this subsection (5)(b)(III) shall limit a taxpayer’s ability to claim a credit against
taxes due in excess of fifty thousand dollars in accordance with subsection (4) of this
section.”
The amount of credit applied toward tax is not independently limited by section 39-22-522(5)(b)(III),
C.R.S. Rather, section 39-22-522(5)(b)(III), C.R.S., limits the aggregate amount of the refund and
amount of the credit applied toward tax only if any refund is claimed pursuant to section 39-22522(5)(b)(I), C.R.S.
Miscellaneous
This letter represents the good-faith opinion of Department personnel who are knowledgeable on
state taxes issues. However, the Department does not make a specific determination on any of the
issues raised and the Department is not bound by this general information letter.
Thank you for your request.
Sincerely,
Office of Tax Policy
Colorado Department of Revenue
4 Excluding amounts transferred to or used by a transferee.