Last week, the IRS announced that farmers and ranchers who were forced to sell livestock due to drought may have an additional year to replace livestock and defer tax on any gains from the forced sales. As a result, eligible farmers and ranchers whose drought-sale replacement period was scheduled to expire on Dec. 31, 2021, in most cases, now have until the end of their next tax year to replace the sold livestock.
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 in an area designated as eligible for federal assistance.
To qualify for relief, farmers or ranchers must have sold livestock on account of drought conditions in an applicable region during any week between Sept. 1, 2020, and Aug. 31, 2021. This is a county or other jurisdiction designated as eligible for federal assistance plus counties contiguous to it. To determine whether exceptional, extreme, or severe drought is reported for any location in the applicable region, please reference to U.S. Drought Monitor maps that are produced on a weekly basis by the National Drought Mitigation Center.
While we are pleased to see record monsoon rainfalls this summer, we are also pleased to see this announcement from the IRS. Details, including an example of how this provision works, can be found in Notice 2006-82, available on IRS.gov.