Farmers and ranchers forced by drought to sell livestock may have another year to replace the livestock and defer tax on gains from the sales, according to the Internal Revenue Service.
The service said that to qualify for relief, farmers or ranchers must have sold livestock on account of drought conditions in an applicable region; this is a county or other jurisdiction designated as eligible for federal assistance plus counties contiguous to it.
The relief generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, or poultry, are not eligible.
The sales must be solely due to drought that has caused an area to be designated as eligible for federal assistance. Livestock generally must be replaced within a four-year period, instead of the usual two-year period.
The IRS can extend this replacement period if the drought continues.
The one-year extension, announced in the notice, gives eligible farmers and ranchers until the end of their first tax year after the first drought-free year to replace the sold livestock. Details, including an example of how this provision works, are in
The IRS provides this extension to eligible farmers and ranchers who sold livestock on account of drought in an applicable region that qualified for the four-year replacement period, if the applicable region is listed as suffering exceptional, extreme or severe drought conditions during any week between Sept. 1, 2020, and Aug. 31, 2021. This determination is made by the
Eligible farmers and ranchers whose drought-sale replacement period was to expire on Dec. 31 in most cases now have until the end of their next tax year to replace the sold livestock. This extension impacts drought sales that occurred during 2017, though replacement periods for some drought sales before that year are also affected due to previous drought-related extensions in some of these localities.
