Colorado has suffered devastating wildfires over the last few years that have taken lives and destroyed property. Pre-wildfire mitigation (actions designed to minimize the destructive effects of wildfire) has never been more crucial.
Mitigation can help by increasing accessibility for emergency personnel, giving homeowners a longer window to evacuation, decreasing the amount of fuel that feeds the fire, and reducing the destruction of property. As more people choose to live in areas with a high wildfire risk, mitigation can mean the difference between life and death.
However, while the benefits are well known, it can be prohibitively expensive. To encourage property owners to perform mitigation on their properties, Colorado allows a tax deduction for qualifying expenses.
Who Can Take the Deduction?
To take the deduction, the taxpayer must be an individual, estate, or trust. Corporations, partnerships, and other legal entities don’t qualify. You also must be an owner of record on the land, and it must be private land.
- Create a defensible space around structures
- Establish fuel breaks
- Thin woody vegetation for the primary purpose of reducing risk to structures from wildfire
- Treat fuels by “lopping, scattering, piling, chipping, or removing from the site”
- Prescribed burning
Qualifying expenses that are explicitly stated in Colorado Department of Revenue FYI Income 65 are:
- Payment to a contractor to perform wildfire mitigation measures
- The cost of a chainsaw if purchased primarily for wildfire mitigation
- The cost to rent an all-terrain vehicle, truck, tractor, or trailer if rented primarily to perform wildfire mitigation measures
There are varying degrees of aggressiveness at play when preparing taxes. Some taxpayers will readily forego deductions and credits that they clearly qualify for, while others stretch the limits. Taking deductions that qualify, but aren’t explicitly stated, is a judgment call by both the taxpayer and tax professional. Expenses you may decide are appropriate, but not explicitly stated include:
- Expenses for running or maintaining a chainsaw used primarily for mitigation (oil, gas, sharpening, tune-up, and repair)
- Costs incurred to get rid of debris (slash disposal, chipper rental)
- Cost of protective gear (chaps, helmet, eye and ear protection)
Not every expense incurred in mitigation qualifies, including:
- Inspection or certification fees paid in association with performing mitigation
- In-kind donations or contributions of time, labor, materials, or equipment to perform mitigation
- Value of the property owner’s time or labor
- Cost-sharing, incentives, or grants that facilitate the performance of mitigation
- Expenses incurred for activities not primarily for mitigation purposes. One example would be if you take down trees on your property that qualify as mitigation but are used as fuel for a woodstove or to sell.
Calculation and Limitations of the Deduction
The deduction allowed each year is the lower of $2,500 or 50% of the qualifying costs for performing wildfire mitigation measures. This limit applies whether filing a Single or Joint return. If filing Married Filing Separately, the deduction may only be taken on one of the property owners’ return.
The deduction is taken on the Subtractions from Income Schedule (DR 0104AD) submitted with your Colorado Individual Income Tax Return (DR 0104). You must also submit copies of receipts documenting the claimed expenses. If not clearly identified on the receipt, I highly suggest making a note on it stating what the expense was for. For electronically filed returns, you can either submit scanned receipts attached to your e-filed return (if the software allows) or by using the E-Filer Attachment at www.colorado.gov/revenueonline/
How You Can Help
When a wildfire breaks out that threatens lives and structures, many people are motivated to help those affected. This is wonderful, and much appreciated! But the truth is, the best way to help is to prevent forest fires and mitigate beforehand. If you don’t live in an affected area, you can still help by:
- Obeying all local laws regarding fires
- Practicing Fire Safety – Only You Can Prevent Forest Fires!
- Donating to an organization that helps with mitigation
- Volunteering with a mitigation organization near you (it’s a fabulous workout!).
Wildfire is a disaster that increasingly affects Coloradans. Pre-fire mitigation helps reduce the risk and severity but can be costly. For property owners, costs can be partly offset by taking advantage of a deduction on their Colorado tax return for qualifying expenses.
This article is a brief introduction to the deduction and is not meant to provide legal or tax guidance. There may be other rules that apply to your particular situation, and I encourage you to seek additional information and talk with your tax professional.
Megan Austin, EA