According to the Internal Revenue Service, farmers and ranchers affected by the huge drought in the United States have an extension to replace livestock and defer tax on gains made through forced sales.  The crippling drought has affected 43 states, and currently stands as one of the worst droughts in U.S. history.  

Many farmers and ranchers are forced to sell livestock because of serious droughts.  In order to conserve water, they need to limit their herd while still trying to make a profit.  In order to qualify for the deferment, the livestock usually needs replaced within four years, but the IRS has allowed an additional year.  

The one-year extension and deferment applies to farmers who sold more livestock used for dairy, breeding, or draft purposes than usual because of the drought.  Farmers who raise livestock for slaughter or sport do not apply for the extension.  

Qualified farmers need to maintain the farm within a county, parish, city or district in a location the National Drought Mitigation Center (NDMC) declare as having “exceptional, extreme or severe” drought conditions for a whole week between September 1, 2011 and August 31, 2012.  

The IRS reports that farmers and ranchers whose replacement period was set to expire at the end of the current tax year (generally December 31, 2012) now have until the same date in 2013.  The extension mainly targets farmers that were affected by droughts in 2008 and are still affected by droughts since the normal extension is four years.  The IRS announces that it will allow further extensions if the severe drought continues.  

More information about the relief can be found on www.irs.gov under Notice 2012-62.  Information about tax issues and reporting drought sales can be found under Publication 225, Farmer’s Tax Guide on the IRS’s website as well.

Source: Internal Revenue Service