Mull drought-related tax issues

Farmers who had to sell off livestock due to the summer drought have additional time to defer payment of capital gains taxes.

Compiled by staff

Published: Oct 5, 2012

The U.S. Internal Revenue Service (IRS) has provided farmers in designated disaster areas an extended period in which to replace animals and defer taxes on gains from drought-related forced livestock sales.

Farmers who sell more livestock than they normally would as a result of drought may defer the tax on the extra gains from those sales. To qualify, livestock generally must be replaced within a four-year period.

Farmers in areas whose drought sale replacement period was scheduled to expire on Dec. 31 in most cases will have until the end of their next tax year to replace their animals.

Read IRS Notice 2012-62 for complete details or check with your tax advisor.

Tom Husek, IAAA small business services director, urges producers to beginning considering the tax implications of 2012 drought-related compensation.

For example, growers can report drought-related crop insurance loss payments as part of either 2012 or 2013 Schedule F income, depending on past marketing practices.

Tax deferral generally is allowed if a farmer does not receive insurance proceeds for a current year’s crop until the following year.

Check out this article for additional information or speak with your tax advisor:
http://farmdocdaily.illinois.edu/2012/07/the_2012_drought_and_income_ta.html

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