PHOENIX, Ariz. — Utah farmers and ranchers forced to sell livestock due to drought have more time to replace the livestock and defer tax on any gains from the forced sales, the Internal Revenue Service has announced.
To qualify, the livestock generally must be replaced within a four-year period. The IRS is authorized to extend this period if the drought continues.
The one-year extension of the replacement period generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes due to drought. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, and poultry are not eligible.
The IRS is providing this relief to any farm located in a county, parish, city or district listed as suffering exceptional, extreme or severe drought conditions by the National Drought Mitigation Center, or NDMC, during any weekly period between Sept. 1, 2015, and Aug. 31, 2016.
Per Notice 2016-60, the following Utah Counties qualify: Beaver, Box Elder, Carbon, Davis, Duchesne, Juab, Millard, Piute, Salt Lake, Sanpete, Sevier, Summit, Tooele, Utah, Wasatch and Weber.
As a result, Utah farmers and ranchers in these areas whose drought sale replacement period was scheduled to expire at the end of this tax year – Dec. 31, 2016, in most cases – will now have until the end of the next tax year.
Because the normal drought sale replacement period is four years, this extension immediately impacts drought sales that occurred during 2012.
But because of previous drought-related extensions affecting some of these localities, the replacement periods for some drought sales before 2012 are also affected.
Details on this relief, including a list of NDMC-designated counties, are available in Notice 2016-60, posted on IRS.gov.
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.