Small Business Taxes & ManagementTM--Copyright 2018, A/N Group, Inc.
The IRS has announced (Notice 2018-79) that farmers and ranchers who previously were forced to sell livestock due to drought in an applicable region now have an additional year to replace the livestock and defer tax on any gains from the forced sales. An applicable region is a county designated as eligible for federal assistance plus counties contiguous to that county. The Notice contains a list of all the applicable counties by state.
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.
The one-year 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.
The IRS provides this extension to farmers and ranchers located in the applicable region that qualified for the four-year replacement period if any county, parish, city, or district, that is included in the applicable 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, 2017, and Aug. 31, 2018. All or part of 42 states, plus the District of Columbia, are listed.
As a result, farmers and ranchers in the applicable region whose drought sale replacement period was scheduled to expire at the end of this tax year, Dec. 31, 2018, 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 2014. But because of previous drought-related extensions affecting some of these localities, the replacement periods for some drought sales before 2014 are also affected. Additional extensions will be granted if severe drought conditions persist.
Details on this relief, including a list of NDMC-designated counties, are in Notice 2018-79, posted on IRS.gov. More information on reporting drought sales and other farm-related tax issues can be found in Publication 225, Farmerís Tax Guide, also available on the IRS web site.
Copyright 2018 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536
--Last Update 09/28/18