ND-2017-001, Aug. 17, 2017
DENVER — Farmers and ranchers who previously were forced to sell livestock due to drought in regions designated as eligible for federal assistance, like the drought currently affecting much of the nation, have an extended period of time in which to replace the livestock and defer tax on any gains from the forced sales, according to the Internal Revenue Service.
This 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 are not eligible.
To qualify, the sales must be solely due to drought, flooding or other severe weather causing the region to be designated as eligible for federal assistance.
Under these circumstances, livestock generally must be replaced within a four-year period, instead of the usual two-year period. But in addition, the IRS is authorized to further extend this replacement period if the drought continues. This extension gives eligible farmers and ranchers until the end of the tax year after the first drought-free year to replace the sold livestock. Details, including an example of how this provision works, can be found in Notice 2006-82, available on IRS.gov.
The IRS provides this extension to farmers and ranchers located in any region that qualified for the four-year replacement period if any county, parish, city, or district, that is included in the region is listed as suffering exceptional, extreme or severe drought conditions by the National Drought Mitigation Center (NDMC), during any weekly period between Sept. 1, 2016, and Aug. 31, 2017. Through July 18, 35 counties in North Dakota were on the NDMC list. A notice, containing the final list for this year for North Dakota and other states, will be issued by the IRS next month.
As a result, farmers and ranchers in these regions whose drought sale replacement period was scheduled to expire at the end of this tax year, Dec. 31, 2017, in most cases, 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 2013. But because of previous drought-related extensions affecting some of these localities, the replacement periods for some drought sales before 2013 are also affected. Additional extensions will be granted if severe drought conditions persist.
The 35 affected counties in North Dakota are: Adams, Barnes, Benson, Billings, Bowman, Burke, Burleigh, Dickey, Divide, Dunn, Emmons, Golden Valley, Grant, Hettinger, Kidder, LaMoure, Logan, McHenry, McIntosh, McKenzie, McLean, Mercer, Morton, Mountrail, Oliver, Pierce, Renville, Sheridan, Sioux, Slope, Stark, Stutsman, Ward, Wells and Williams.
Details on reporting drought sales and other farm-related tax issues can be found in Publication 225, Farmer’s Tax Guide, also available on the IRS web site.