Farmers and ranchers forced to sell livestock because of drought conditions may have more time to replace their livestock and defer tax on any gains from the forced sales. If you are a farmer or rancher affected by drought conditions, here is what you need to know about this important tax relief extension.
How the extension works:
This extension applies to eligible farmers and ranchers who qualified for the four-year replacement period if they were suffering exceptional, extreme, or severe drought conditions as determined by the National Drought Mitigation Center during any week between September 1, 2021, and August 31, 2022.
Because the normal drought-sale replacement period is four years, this extension impacts drought sales during 2018. As a result, eligible farmers and ranchers with a drought-sale replacement period ending December 31, 2022, now have until the end of their next tax year to replace the sold livestock. The replacement periods for some drought sales (before 2018) are also affected due to previous drought-related extensions affecting some of these localities.
Eligible livestock sales
The sales must be solely due to drought in an area eligible for federal assistance. Farmers and ranchers must replace the livestock within four years instead of the usual two years. If the drought continues, this replacement period may be extended.
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, aren’t eligible.
Regions designated as eligible for federal assistance
The list of areas eligible for federal assistance includes 44 states, two U.S. Territories, and two independent nations in a Compact of Free Association with the United States.
If you are a farmer or rancher affected by drought sales and other farm-related tax issues, help is just a phone call away.