Tax Credit for Transfer of Agricultural Asset

The bill establishes a state income tax credit (credit) for the sale or lease of land, crops, livestock and livestock facilities, farm equipment and machinery, grain storage, irrigation equipment, or water used for agriculture (agricultural assets) to certain agricultural producers for income tax years beginning on or after January 1, 2026, but before January 1, 2031. There are 3 different credits that may be earned by a qualified taxpayer. For the sale of an agricultural asset to a beginning farmer or rancher or socially disadvantaged farmer or rancher, a qualified taxpayer may earn a credit equal to 5% of the lesser of the sale price or fair market value of the agricultural asset up to a maximum credit of $32,000 for one income tax year. For the lease of an agricultural asset to a beginning farmer or rancher or socially disadvantaged farmer or rancher, a qualified taxpayer may earn a credit equal to 10% of the gross rental income in each of the first, second, and third years of the rental agreement, up to a maximum credit of $7,000 for one income tax year. For the lease of an agricultural asset to a beginning farmer or rancher or socially disadvantaged farmer or rancher for a period of 20 years or more, a qualified taxpayer may also earn a credit equal to 2% of the gross rental income for each year after the first 3 years of the extended term lease, up to a maximum amount of $2,000 per income tax year. The credit is refundable and may not be carried forward.

To claim the credit, a qualified taxpayer must apply to the Colorado agricultural value-added development board (board) for a credit certificate (certificate). The board will evaluate the application and issue a certificate if the taxpayer qualifies for the credit. If a certificate is issued, the qualified taxpayer must attach it to the taxpayer's income tax return and submit it to the department of revenue to claim the credit. The board may issue rules to administer the credit.

The aggregate amount of credits issued in one calendar year cannot exceed $2 million. After certificates have been issued for credits that exceed an aggregate of $2 million for all qualified taxpayers during a calendar year, any claims that exceed the amount allowed are placed on a wait list in the order submitted and a certificate is issued for use of the credit in the next income tax year. No more than $2 million in claims shall be placed on the wait list in any given calendar year.

(Note: This summary applies to this bill as introduced.)