The Tax Court found that transferable Colorado state conservation easement income tax credits sold by individuals were capital assets because they were not non-capital assets under Code Sec. 1221 and were not a substitute for ordinary income, because the credits did not represent a right to income. Section 1221(a) defines “capital asset” as “property held by the taxpayer” other than eight specifically excluded categories. None of the eight excluded categories describes State tax credits such as those received and sold by the taxpayers. The holding period for the credits began when the taxpayers received the credits, not when they acquired the real property that was subject to the conservation easement, and consequently it was short term capital gain. The decision follows a similar Tax Court holding in Tempel v. Commissioner, CCH Dec. 58,594, 136 T.C. ___ (2011).
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