Deferred Tax on Gains From Forced Sales of Livestock
Farmers and ranchers forced to sell livestock due to drought may have an additional year to replace the livestock and defer tax on any gains from the forced sales. Here are some important facts to help farmers understand how the deferral works and their eligibility.
1. The one-year extension gives eligible farmers and ranchers until the end of the tax year after the first drought-free year to replace the sold livestock.
2. The farm or ranch must be in an applicable region to qualify for relief. An applicable region is a county or other jurisdiction designated as eligible for federal assistance plus counties contiguous to it.
3. The farmer’s county, parish, city, or district included in the applicable region must be listed as suffering exceptional, extreme, or severe drought conditions by the National Drought Mitigation Center. All or part of 36 states and one U.S. territory are listed.
4. The relief applies to farmers who were affected by drought that happened between September 1, 2020, and August 31, 2021.
5. This 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.
6. To qualify, the sales must be solely due to drought, flooding, or other severe weather causing the region to be designated as eligible for federal assistance.
7. Farmers generally must replace the livestock within a four-year period instead of the usual two-year period.
8. Qualified farmers and ranchers whose drought-sale replacement period was scheduled to expire at the end of this tax year, December 31, 2021, in most cases, now have until the end of their next tax year. The normal drought sale replacement period is four years. As such, this extension immediately impacts drought sales that occurred during 2017. Furthermore, the replacement periods for some drought sales before 2017 are also affected because of previous drought-related extensions affecting some of these areas.
Please call the office if you want more information about reporting drought sales or other farm-related tax issues.