Drought, Farms and Taxes

Ag Secretary Tom Vilsack has added 218 counties in 12 states to the list of counties classified as drought disaster zones. A current Department of Agriculture report says that half of all US counties have drought disaster designation.  Of course, Kansas is one of them. In 2011, this area had 53 days with the temperatures over 100 degrees and so far this year we’ve had 26 and the forecast for the next few days is still in triple digits. (Even when it drops below 100,  the forecast is still showing high 90s.) The two years of 2011 and 2012 have set a new record for most 100 degree days in back to back years.

Of course, this means that the crops are dying in the field and farmers have to buy feed to supplement grazing. And, in some cases they’re trucking in water for livestock and crops.

To be honest, I expect that I won’t see a farm with a profit next tax season. Farming is hard enough in a good year; a disaster year can kill a family farm. And there’s not much the tax code can do to help a farmer. A farmer can elect to defer the income from their crop insurance proceeds. Or if they sell off extra livestock because of drought conditions they can defer the gain on those sales. Both elections require a special statement with details of the special circumstance. If the losses are great enough, a net operating loss could be created. A farm NOL is allowed to be carried back for 5 years. If the farmer has had a few good years, this could bring in refunds from those year of the income tax paid (SE tax doesn’t qualify.) Finally, this year’s drought might actually help in a future good year if the farmer qualifies for income averaging.

If you live or farm in a drought area, talk to your tax pro about these options. And, who knows, Congress might think of a new program to help in this disaster.

Drought Map.

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Comments

[Cindy Galford]

This is an issue we are definitely going to be seeing in our area too.