The IRS has granted a one-year reprieve, available in parts of 38 states, for farmers and ranchers who previously were forced to sell livestock due to drought and now must replace those livestock to avoid a tax liability.
Farmers and ranchers who sell more livestock than they normally would because of drought may defer tax on the extra gains from those sales. To qualify, the livestock generally must be replaced within a four-year period. However, the IRS is authorized to extend the four-year period if the drought continues.
In Notice 2013-62, the IRS announced that a 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. Sales of other livestock, such as poultry and livestock raised for slaughter or held for sporting purposes, are not eligible.
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). These conditions must have been experienced during any weekly period between Sept. 1, 2012, and Aug. 31, 2013. Any county contiguous to a county listed by the NDMC also qualifies for the relief.
Farmers and ranchers in these areas whose drought sale replacement period was scheduled to expire on Dec. 31, 2013, will now have until the end of their next tax year. This extension immediately impacts drought sales that occurred during 2009.
However, because of previous drought-related extensions affecting some of these localities, the replacement periods for some drought sales before 2009 are also affected. In addition, the IRS announced that it may grant more extensions if severe drought conditions persist.