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Indiana drought-stricken farmers get some help from the IRS

Posted on October 21, 2019

Farmers and ranchers who were adversely affected by drought this calendar year now have some welcome tax relief from the IRS, according to Teipen Selanders Poynter & Ayres.

If you own a farm or ranch and had to sell livestock due to drought, you have an additional year to replace the livestock and defer tax on any gains from the forced sales, according to new regulations from the Internal Revenue Service.

There are a few restrictions farmers and ranchers must abide by:

  • The farmer or rancher must reside in a county designated as eligible for federal assistance.
  • Tax relief generally applies to capital gains realized by sales of livestock held for draft, dairy or breeding purposes. (Sales of livestock or poultry raised for slaughter or held for sporting purposes, are not eligible).
  • To qualify, sales must be solely due to drought, flooding or other severe weather causing the region to be designated as eligible for federal assistance.
  • Livestock generally must be replaced within a four-year period, instead of the usual two-year period.

The one-year IRS extension gives eligible farmers and ranchers until the end of the tax year after the first drought-free year to replace the sold livestock. Because the normal drought-sale replacement period is four years, this extension immediately impacts drought sales that occurred during 2015. As a result, qualified farmers and ranchers whose drought-sale replacement period was scheduled to expire at the end of this tax year, Dec. 31, 2019, in most cases, now have until the end of their next tax year.

The IRS is also authorized to further extend this replacement period if the drought continues.

Details of how this provision might apply to your situation can be found on IRS.gov by clicking on Notice 2006-82. Information on reporting drought sales and other farm-related tax issues is available in Publication 225, Farmer’s Tax Guide, also available on IRS.gov.

Or, you can call your CPA at Teipen Selanders Poynter & Ayres and chat about your particular situation.