Farmers and ranchers recently forced to sell livestock due to drought now affecting much of the U.S. have an extended time to replace the livestock and defer tax on any gains from the forced sales.
According to the IRS, to qualify the livestock must generally be replaced within four years. The one-year extension of the replacement period announced today 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 sport, and poultry are ineligible.
The IRS can extend this period if the drought continues.
This relief is for any farm 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 during any weekly period between Sept. 1, 2014, and last August 31. All or part of 48 states and Puerto Rico are listed. Any county contiguous to a county listed by the NDMC also qualifies.
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, will in most cases 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.
Details on this relief, including a list of NDMC-designated counties, are in Notice 2015-69. Details on reporting drought sales and other farm-related tax issues can be found in Publication 225, Farmer’s Tax Guide, also on the IRS site.
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