WASHINGTON − Farmers and ranchers forced to sell livestock due to drought may have another year to replace the livestock and defer taxes on any gains from the forced sales, the Internal Revenue Service stated.

To qualify for relief, the farm or ranch must be in an applicable region. This is a county or other jurisdiction designated as eligible for federal assistance, plus counties contiguous to it. Notice 2020-74, posted on IRS. gov, lists applicable regions in 46 states.

The relief applies generally 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, are not eligible.

To qualify, the sales must be solely due to drought, flooding or other severe weather causing the region to be designated as eligible for federal assistance. Livestock generally must be replaced within a four-year period, instead of the usual two-year period. The IRS also is authorized to further extend this replacement period if the drought continues.

The one-year extension, announced in the notice, gives eligible farmers and ranchers until the end of the tax year after the first drought-free year to replace the sold livestock. Details, including an example of how this provision works, can be found in Notice 2006-82, available on IRS.gov.

The IRS provides this extension to farms and ranches located in the applicable region that qualified for the four-year replacement period, if any county that is included in the applicable region is listed as suffering exceptional, extreme or severe drought conditions during any week between Sept. 1, 2019, and Aug. 31. This determination is made by the National Drought Mitigation Center. All or part of 46 states, plus the District of Columbia and four U.S. territories are listed in the notice.

As a result, qualified farmers and ranchers whose drought-sale replacement period was scheduled to expire at the end of this tax year, Dec. 31, in most cases now have until the end of their next tax year.