3 October 2016

IRS Offers More Tax Relief on Sale of Livestock Due to Drought

washington, D.C. (September 30, 2016)  
By Jeff Stimpson

Farmers and ranchers who were forced to sell livestock due to drought now have more time to replace the livestock and defer tax on any gains from the forced sales, the IRS said.

To qualify, the taxpayers must be selling more stock due to drought than they normally would, and the livestock generally must be replaced within a four-year period; the IRS can extend this period if the drought continues.

This new one-year extension of the replacement period generally applies to capital gains realized by eligible farmers and ranchers on drought-induced sales of livestock held for draft, dairy or breeding. Sales of other livestock, such as those raised for slaughter or for sporting purposes, and poultry are ineligible.
The relief is available for any farm in a county, parish, city or district that listed as suffering exceptional, extreme or severe drought conditions by the National Drought Mitigation Center, during any weekly period between Sept. 1, 2015, and last Aug. 31. All or part of 37 states and Puerto Rico are listed. Any county contiguous to a county listed by the NDMC also qualifies for this relief.

Farmers and ranchers in these areas whose drought sale replacement period was scheduled to expire at the end of this tax year (Dec. 31) in most cases will now have until the end of their next tax year.

Details on this relief, including a list of NDMC-designated counties, are available in Notice 2016-60, on IRS.gov. Details on reporting drought sales and other farm-related tax issues are in Publication 225, Farmer’s Tax Guide.