Farmers and ranchers who previously were forced to sell livestock due to drought, like the drought currently affecting California, have an extended period of time in which to replace the livestock and defer tax on any gains from the forced sales.
In a report, Raphael Tulino, who handles media relations for the IRS in the Bay Area, as well as in Southern California and Nevada, said that to qualify, the livestock generally must be replaced within a four-year period. The IRS is authorized to extend this period if the drought continues.
The one-year extension of the replacement period announced this week generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes due to drought. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, as well as poultry are not eligible.
The IRS is providing this relief to any farm located in an area listed as suffering exceptional, extreme or severe drought conditions by the National Drought Mitigation Center (NDMC), during any weekly period between Sept. 1, 2014, and Aug. 31, 2015, Tulino said.
As a result, farmers and ranchers whose drought sale replacement period was scheduled to expire at the end of this tax year will now have until the end of their next tax year. Because the normal drought sale replacement period is four years, this extension immediately impacts drought sales that occurred during 2011. But because of previous drought-related extensions affecting some of these localities, the replacement periods for some drought sales before 2011 are also affected. Additional extensions will be granted if severe drought conditions persist.