Attention farmers: if you have deferred the gain on livestock sales because of the recent drought conditions, the IRS has extended the replacement period due to the continuing drought.
When a farmer or rancher has to sell more livestock than usual because of drought conditions they can elect to defer reporting the gain on the extra sales for up to 4 years. The livestock has to be held for breeding, draft or dairy purposes. Poultry and animals raised for slaughter or sporting purposes are not eligible for the deferment. The extra livestock need to be replaced within the 4 years also. However, when the drought continues, as it has this year, the IRS has the ability to extend the replacement period. Which they are doing now.
Farmers and ranchers whose farm is in a county, parish, city or district which has been listed as suffering drought conditions by the National Drought Mitigation Center from September 1, 2011 to August 31, 2012 are eligible for the extra year. This covers all or part of 43 states. A farm can also qualify if they are next to a county that does qualify. So, farmers and ranchers whose sale replacement period was set to expire on December 31, 2012 will get another year. Generally, these are drought sales which took place in 2008 but may also be available for some sales before 2008.
Info about drought sales can be found in Publication 225.