The IRS said last week that farmers and ranchers who had to sell livestock due to drought will have an extended period of time during which they can replace the livestock and defer tax on any sale gains.
To qualify, the livestock must generally be replaced within a four-year period, though the IRS may extend the period if the drought that currently affects the nation continues.
The extension generally applies to capital gains realized by farmers and ranchers on sales of livestock held for dairy, breeding or draft purposes as a result of drought. Sales of other livestock, including animals raised for slaughter or held for sporting, as well as poultry, are not eligible for the extension.
Any farm located in an area listed as suffering exceptional, extreme or severe drought conditions by the National Drought Mitigation Center between September 1, 2012 and Aug. 31 is eligible for the relief.
As a result of the announcement, farmers and ranchers in drought areas will have until the end of their next tax year for their drought sale replacement period. Because the normal period is four years, the extension immediately relates to drought sales that took place in 2009, and some before 2009 are also affected.