The Internal Revenue Service (IRS) has announced new guidance offering tax relief to farmers and ranchers who were forced to sell or exchange livestock due to ongoing drought conditions across the United States.
What This Means for Farmers and Ranchers
Under this relief, eligible taxpayers will have additional time to replace livestock sold because of drought. Normally, the IRS requires livestock to be replaced within two years to defer capital gains tax from the sale. With this extension, farmers and ranchers may now have up to four years and in some cases even longer, depending on how long the drought continues.
This relief applies to livestock held for draft, dairy, or breeding purposes. However, it does not apply to livestock raised for slaughter, held for sporting purposes, or poultry.
Areas Covered
The IRS guidance (Notice 2025-52) identifies the counties and regions eligible for this extension. It covers 49 states, the District of Columbia, and other regions that reported exceptional, extreme, or severe drought during the 12-month period ending August 31, 2025.
Eligibility depends on:
• The livestock being sold because of drought conditions.
• The region being federally designated as affected by drought.
How the Extension Works
• Farmers and ranchers normally have 2 years to replace livestock and defer tax.
• The IRS has extended this to 4 years.
• If drought conditions continue, the IRS allows even more time, until the end of the first tax year after the first drought-free year following the extension.
For example: If your replacement period was set to expire at the end of 2025, you now have until the end of your next tax year to replace the livestock without triggering capital gains tax.
Need Help?
At JAF CPA LLC, we support farmers and ranchers with more than just taxes, we also handle the bookkeeping that keeps your operation running smoothly. From tracking livestock sales and recording expenses to applying IRS relief provisions correctly, our team ensures your financial records and tax filings work hand in hand.
If you’ve had to sell livestock due to drought and want to make sure you qualify for this tax relief while keeping your books accurate and up to date, we’re here to help.
Send us a mail here.
Source: IRS Newsroom
