SOURCE: IRS Special Edition Tax Tip 2014-19
If you have clients who are farmers or ranchers and drought forced them to sell their livestock, special IRS tax relief may help.
The IRS has extended the time to replace livestock that farmers were forced to sell due to drought. If your client is eligible, this may help them defer tax on any gains they received from the forced sales. The relief applies to all or part of 30 states affected by drought. Here are several points you should know about this relief:
- If the drought caused you to sell more livestock than usual, you may be able to defer tax on the extra gains from those sales.
- You generally must replace the livestock within a four-year period. The IRS has the authority to extend the period if the drought continues. For this reason, the IRS has added one more year to the replacement period in 30 states.
- The one-year extension of time generally applies to certain sales due to drought.
- If you are eligible, your gains on sales of livestock that you held for draft, dairy or breeding purposes apply.
- Sales of other livestock, such as those you raised for slaughter or held for sporting purposes and poultry, are not eligible.
- The IRS relief applies to farms in areas suffering exceptional, extreme or severe drought conditions. The National Drought Mitigation Center has listed all or parts of 30 states that qualify for relief. Any county that is contiguous to a county that is on the NDMC’s list also qualifies.
- This extension immediately impacts drought sales that occurred during 2010.
- However, the IRS has granted previous extensions that affect some of these localities. This means that some drought sales before 2010 are also affected. The IRS will grant additional extensions if severe drought conditions persist.