It’s been a tough decade or two for farmers and ranchers in the Southwest. Arizona is now in its 26th consecutive year of a long-term drought even though the 2021 August monsoons produced 200% of normal rainfall. These extremely dry conditions have forced some farmers and ranchers to sell livestock. The federal government is providing drought relief by extending the time to replace the livestock and deferring gains tax on the forced sales caused by drought that happened between September 1, 2020, and August 31, 2021.
Farmers and ranchers now have until the end of the tax year after the first drought-free year to replace their livestock. To take advantage of this extension, you must be in a region designated eligible for federal assistance, and your county, parish, city or district must be listed as suffering exceptional, extreme or severe drought conditions by the National Drought Mitigation Center.
In normal times, farmers and ranchers have two years to replace livestock. This relief extends that period to four years. Because that time has been extended, drought sales that occurred during 2017 are applicable too.
This drought relief also applies to capital gains on sales of draft, dairy or breeding livestock. Capital gains realized on the sale of livestock held for slaughter or other purposes and poultry are not eligible. To qualify for relief, you must be in an area designed eligible for federal assistance, and you must prove the sales were necessary because of drought, flooding or severe weather.
If you still have any questions about deferring gains, or about your taxes in general, please don’t hesitate to contact a Henry+Horne tax professional to assist you. For more information on how Henry+Horne can help you with your tax needs, check out our Accounting Services page.