IRS Tax Relief for Drought-Impacted Farmers & Ranchers: What Tax Pros Need to Know
- MyTAXPrepOffice Editorial Group
- 5 hours ago
- 3 min read
The IRS recently announced extended tax relief for farmers and ranchers in many states who were forced to sell livestock due to drought. If you work with agricultural clients, this is important—this relief can allow deferral of gains tied to drought-related livestock sales, giving clients more time to replace livestock. Below are key details and planning considerations.
What the Relief Provides
Eligible farmers and ranchers may defer capital gains from forced livestock sales due to drought, provided the sales are of livestock held for draft, dairy, or breeding purposes. Livestock raised for slaughter, sporting, or poultry are not eligible.
The relief includes a replacement period extension: livestock generally must be replaced within 4 years instead of the normal 2-year window.
The IRS has issued a one-year extension for many farmers whose replacement period was set to expire—in most cases, they now have until the end of the tax year following the first drought-free year for their region to make replacements.
Who Qualifies
To take advantage of this relief, several criteria must be met:
Type of livestock: Must be draft, dairy, or breeding livestock. Sales of livestock raised for slaughter, sporting animals, or poultry do not qualify.
Reason for sale: The sale must be solely due to drought, in regions designated as suffering “exceptional, extreme, or severe drought” conditions as determined by the National Drought Mitigation Center.
Location: Many counties in 49 states plus territories are covered. The IRS publishes notices listing eligible jurisdictions.
Timeline: Replacements must happen within the extended timeframe (4 years generally, or the one-year extension after a drought-free year where applicable) to defer the gain.
Planning Considerations for Tax Pros
Check eligibility early. Identify clients who made “drought sales” of livestock in covered jurisdictions. Determine whether those jurisdictions were designated for drought relief (via IRS notices / National Drought Mitigation Center data).
Review replacement periods. Some clients may have been expecting their replacement deadline to expire—advise them how the extension affects their situation.
Use correct documentation. Make sure forced sales can be clearly tied to drought conditions, and that livestock type & dates of sale and replacement are documented.
Evaluate cash flow & timing. Replacement of livestock may require investments, so knowing how long the deferral will defer gain taxes (and possible extensions) helps clients plan purchases or breeding stock.
Coordinate with estate or farm succession considerations. For clients transitioning the farm or planning inherited farm operations, these relief provisions may affect basis, gain deferral, or timing of replacements.
What to Tell Your Clients
If you've sold eligible livestock because of drought, don’t assume the gain must be recognized immediately—you may be eligible to defer it.
There is extended time to replace the livestock in many eligible cases, especially if your replacement period was expiring.
Confirm that your county was listed under drought-designation and that the sale meets the “solely due to drought” requirement.
Document everything—sales, replacements, livestock type—for IRS compliance.
Bottom Line
This IRS relief gives a meaningful opportunity to lessen tax burdens for drought-impacted livestock operations—but only if clients know it exists, meet eligibility criteria, and act in time. As a tax professional, your guidance in identifying eligible clients, documenting their sales, and helping with replacement planning can make a big difference.
Disclaimer: This article is for informational and educational purposes only and does not constitute legal tax advice. Advanced Tax Solutions is not liable or responsible for any damages resulting from or related to your use of this information. It is your responsibility to refer to official IRS documentation for information regarding any tax laws or tax information shown here.
