IRS Lists County Affected by Drought
The Tax Code allows ranchers to roll over gain from having to sell cattle due to drought conditions. This deferral period is usually the year of gain plus 4 years. However, if the county (or any contiguous county) is still affected by drought, then the rancher will have an additional year to defer the gain.
The IRS just released Notice 2019-54 that lists all of these counties. If your county is listed, you then have another year to roll over the gain into additional livestock.
Remember if the gain is related to raised livestock that has been held longer than two years (for cattle and horses) or one year for other livestock (hogs, sheep, goats, etc.), this normally qualifies as capital gain and thus it is likely better to report the gain and pay tax at the lower rate and then take 100% bonus depreciation on the replacement livestock.
Also, if the drought continues and you determine that you can’t continue to raise livestock due to the drought, you are then able to roll over the gain into farm equipment.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Does this apply to all livestock sold this year, or only livestock sold after this IRS Release?