Colo. Code Regs. 39-22-543

Current through Register Vol. 47, No. 23, December 10, 2024

Rule 39-22-543 - Wildfire Mitigation Measures Credit

Basis and Purpose. The statutory bases for this rule are sections 39-21-112(1) and 39-22-543, C.R.S. The purpose of this rule is to explain the requirements for the wildfire mitigation measures credit and to provide examples.

(1)General Rule. For the tax periods specified in section 39-22-543, C.R.S. and subject to the provisions of section 39-22-543, C.R.S., landowners may claim a non-refundable income tax credit for a percentage of the cost of wildfire mitigation measures performed on their privately-owned land in Colorado.

(2)Paid Out-of-Pocket Expenses. A cost eligible for the credit must be an actual out-of-pocket expense incurred and paid by the landowner primarily for wildfire mitigation measures.

(a)Examples.

(i) A landowner who hires and pays a third-party contractor to cut down trees as a wildfire mitigation measure has incurred and paid an out-of-pocket expense.

(ii) A landowner who personally cuts down trees as a wildfire mitigation measure has not incurred or paid an out-of-pocket expense for their time and labor.

(iii) A landowner who purchases a chainsaw primarily for performing wildfire mitigation measures has incurred and paid an out-of-pocket expense.

(3)Costs Incurred Primarily for Non-Wildfire Mitigation Purposes. Any cost must be for property or services primarily used for wildfire mitigation measures.

(a)Examples.

(i) Purchases of an all-terrain vehicle, truck, tractor, or trailer are not eligible for the credit, even though the landowner may use these items to perform wildfire mitigation measures, if these items are not primarily used for wildfire mitigation measures. Similarly, rental charges for the items identified, above, would be eligible for the credit if the landowner primarily uses the rented items to perform wildfire mitigation measures.

(ii) Costs for landscaping that are primarily for aesthetic purposes, such as installation of a patio, lawn, garden or similar landscaping, but also serve as a fire break or other wildfire mitigation measure, are not eligible for the credit because the costs were not incurred primarily for wildfire mitigation measures.

(4)Ineligible Costs. Costs that are not eligible for the credit include an inspection or certification fee, in-kind contribution, donation, incentive, or a cost sharing arrangement associated with, or grants awarded for, performing wildfire mitigation measures.

(a)Inspection or Certification Fees.

(i)Example. The amount a landowner pays for a fire mitigation survey of their land to determine the amount of work necessary to perform wildfire mitigation measures or as means of verifying insurance compliance does not qualify as a "cost" that is eligible for the credit.

(b)In-Kind Contributions.

(i)Example. A landowner who personally performs wildfire mitigation measures for a summer camp and who contributes the use of a chainsaw and truck as a gift to the summer camp cannot claim the value of the landowner's personal services (because the personal service is not an actual out-of-pocket expense but rather an in-kind contribution and donation, neither of which qualify as "costs" for purposes of this rule) or the rental value for the use of the chainsaw or truck on the summer camp's property (for the same reasons).

(c)Donation.

(i)Example. A landowner allows without charge the use of the landowner's trailer by a third party to perform wildfire mitigation measures. Neither the landlord nor the third party may claim the value of the donation to rent the trailer as a credit.

(ii)Example. A landowner who performs wildfire mitigation services for free to a summer camp that neighbors the landowner's property cannot claim the value of the donation as a credit.

(d)Cost Sharing. Cost sharing is an arrangement by which participants, which may include landowners and non-landowners, agree to share the cost of performing wildfire mitigation measures.

(i)Example. Neighboring landowners who agree to share the costs of purchasing or renting equipment for, or for hiring a third-party contractor to perform, wildfire mitigation measures on their respective private lands cannot claim their portion of such costs as a credit.

(e)Grants and Incentives. A cost paid from, or reimbursed by, an incentive or grant awarded to, or made available to, a landowner to perform wildfire mitigation measures is not eligible for the credit.

(5)Landowner. A taxpayer claiming the credit must be a landowner of private land located in Colorado.

(a)Estate in Land. A landowner is an owner of record of a fee interest in real property (whether held solely, jointly or in common), easement, right-of-way, or other estate in real property. An easement is a non-possessory interest in real property to enter on to land and use the land, or to restrict the use of such land, for an indefinite or specific period of time, such as a right-of-way to travel across land or to use the land for recreational purposes (e.g., fishing, hunting, camping). A right-of-way typically is a type of easement. A lease is an estate in land and, therefore, a lessee is a landowner for purposes of this rule, provided that evidence of the lease is properly recorded. The lessor is also a landowner as either the owner of a fee interest in the land or as a lessee who is acting in the capacity of a sublessor.

(b)Taxpayer's Property Interest. Wildfire mitigation measures must be performed on the taxpayer's property interest for the taxpayer to be eligible for the credit.

(i)Examples.

(A) A taxpayer who is a lessee of land owned by someone else can claim the credit for the costs they incur for wildfire mitigation measures performed on the property because the work was performed on an estate (e.g., lease) owned by the taxpayer, even though a third party owned the underlying fee interest in the land. If the lessor separately incurs costs for wildfire mitigation measures performed on the same property, they may also claim a credit for the costs they pay. However, if the lessor and lessee share the costs of the wildfire mitigation measures, they would be ineligible to claim the credit as noted in paragraph 4(d) of this rule.

(B) A taxpayer who pays for wildfire mitigation measures on a neighboring landowner's land for the purpose of protecting the taxpayer's land cannot claim the costs for such work because the wildfire mitigation measure was not performed on the taxpayer's land.

(c)Public Property. A person who holds an easement, right-of-way, lease, or other estate in land that is owned by a governmental entity is not a landowner because the subtraction is available only if the wildfire mitigation measures are performed on private land, not public land.

(i)Examples.

(A) A sole proprietor who owns or leases a building on land owned by the government is not a landowner for purposes of this rule because the land is not private land, even though the proprietor owns a private estate (lease).

(B) An individual who has an easement or right-of-way on land owned by the federal Bureau of Land Management is not a landowner for purposes of this rule because the land is not private land, even though the proprietor owns a private estate (easement or right-of-way).

(d)Private Property Held by a Legal Entity. A partnership, S corporation, or other similar legal entity that owns private land as an entity cannot claim the credit unless there is a dwelling on that land that is designed for residential occupancy. Additionally, an individual who holds an easement, leasehold, right-of-way, or other estate in real property owned or leased by such legal entity is a landowner for purposes of this rule.

(i) A partnership, S corporation, or similar legal entity that has a residential dwelling on their privately-owned land may qualify for the credit only if their federal taxable income as determined by sections 703 and 1363, respectively, of the Internal Revenue Code meets the federal taxable income limitations established in section 39-22-543(4), C.R.S. Additionally, a partner or shareholder may qualify for their share of the total maximum credit only if their federal taxable income meets the limitation established in section 39-22-543(4), C.R.S.

(ii) The total maximum credit allowed to a partnership, S corporation, or similar legal entity per tax period is subject to the limit established in section 39-22-543(4), C.R.S. A partner or shareholder may only claim their respective share of the total maximum credit allowed to the partnership, S corporation, or pass-through entity as established in section 39-22-543(4) C.R.S.

39-22-543

46 CR 15, August 10, 2023, effective 8/30/2023