Tax Tip 2022-152: Farmers and ranchers hit hard by drought may be eligible for extension of tax relief
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Issue Number: Tax Tip 2022-152
Farmers and ranchers hit hard by drought may be eligible for extension of tax relief
Farmers and ranchers forced to sell livestock because of drought conditions may have more time to replace their livestock and defer tax on any gains from the forced sales. The IRS recently announced a one-year extension which gives eligible farmers and ranchers until the end of their first tax year after the first drought-free year to replace the sold livestock.
How the extension works
Because the normal drought-sale replacement period is four years, this extension impacts drought sales that occurred during 2018. As a result, eligible farmers and ranchers with a drought-sale replacement period ending Dec. 31, 2022, now have until the end of their next tax year to replace the sold livestock. The replacement periods for some drought sales before 2018 are also affected due to previous drought-related extensions affecting some of these localities.
For details on how the provision works, taxpayers should read IRS Notice 2006-82.
Eligible livestock sales
The 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 aren’t eligible.
Regions designated as eligible for federal assistance
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