Farmers and ranchers who previously were forced to sell livestock due to drought, like the drought currently affecting much of the nation, have an extended period of time in which to replace the livestock and defer tax on any gains from the forced sales.
The one-year extension of the replacement period generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes due to drought. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, and poultry are not eligible.
Farmers and ranchers in these areas whose drought sale replacement period was scheduled to expire at the end of this tax year, Dec. 31, 2015, in most cases, will now have until the end of their next tax year. Because the normal drought sale replacement period is four years, this extension immediately impacts drought sales that occurred during 2011. But because of previous drought-related extensions affecting some of these localities, the replacement periods for some drought sales before 2011 are also affected. Additional extensions will be granted if severe drought conditions persist.
The IRS is providing this relief to any farm located in a county, parish, city, borough, census area or district, listed as suffering exceptional, extreme or severe drought conditions by the National Drought Mitigation Center (NDMC), during any weekly period between Sept. 1, 2014, and Aug. 31, 2015. All or part of 48 states and Puerto Rico are listed. Any county contiguous to a county listed by the NDMC also qualifies for this relief.
A taxpayer may determine whether exceptional, extreme, or severe drought is reported for any location in the applicable region by reference to U.S. Drought Monitor maps that are produced on a weekly basis by the National Drought Mitigation Center. U.S. Drought Monitor maps are archived at Drought Monitor maps.
In addition, in September of each year, the IRS publishes a list of counties, districts, cities, boroughs, census areas or parishes (hereinafter “counties”) for which exceptional, extreme, or severe drought was reported during the preceding 12 months. Taxpayers may use this list instead of U.S. Drought Monitor maps to determine whether exceptional, extreme, or severe drought has been reported for any location in the applicable region.
Here are seven facts you should know about this relief:
- If the drought caused you to sell more livestock than usual, you may be able to defer tax on the extra gains from those sales.
- You generally must replace the livestock within a four-year period. The IRS has the authority to extend the period if the drought continues. For this reason, the IRS has added one more year to the replacement period in 30 states.
- The one-year extension of time authorized by the IRS generally applies to certain sales due to drought.
- If you are eligible, your gains on sales of livestock that you held for draft, dairy or breeding purposes apply.
- Sales of other livestock, such as those you raised for slaughter or held for sporting purposes and poultry, are not eligible.
- The IRS relief applies to farms in areas suffering exceptional, extreme or severe drought conditions. The National Drought Mitigation Center has listed all or parts of 30 states that qualify for relief (see above). Any county that is contiguous to a county that is on the NDMC’s list also qualifies.
- This extension immediately impacts drought sales that occurred during 2010. However, the IRS has granted previous extensions that affect some of these localities. This means that some drought sales before 2010 are also affected. The IRS will grant additional extensions if severe drought conditions persist.
If you have any questions about whether you’re eligible for this particular tax relief, don’t hesitate to contact the office.