IRS Offers Relief to Hawai‘i’s Drought-Stricken Farmers

Farmers and ranchers who were previously forced to sell livestock due to drought in an applicable region now have an additional year to replace the livestock and defer tax on any gains from the forced sales, according to the Internal Revenue Service.

The IRS recently announced that farmers and ranchers who previously were forced to sell livestock due to drought have an extended period of time in which to replace the livestock and defer tax on any gains from the forced sales. The relief is being provided to Hawai’i, Kaua’i and Maui counties. Big Island Now stock photo.

An applicable region is a county designated as eligible for federal assistance plus counties contiguous to that county. The designated counties are Hawai‘i, Maui and Kaua‘i.

The IRS states the relief generally applies 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.

An article on Sept. 18, stated that a report from the US Drought Monitor showed that 90.65% of the state was abnormally dry or drier than year-ago data. At this time in 2016, only 9.44% of the State had abnormally dry or drier conditions reported.

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.

Under the circumstances, the IRS states that livestock generally must be replaced within a four-year period, instead of the usual two-year period. But in addition, the IRS is authorized to further extend this replacement period if the drought continues.

The one-year extension gives eligible farmers and ranchers until the end of the tax year after the first drought-free year to replace the sold livestock.

The IRS provides the extension to farmers and ranchers located in the applicable region that qualified for the four-year replacement period if any county, parish, city or district, that is included in the applicable region is listed as suffering exceptional, extreme or severe drought conditions by the National Drought Mitigation Center, during any weekly period between Sept. 1, 2016, and Aug. 31, 2017. All or part of 42 states, plus the District of Columbia, are listed.

As a result, farmers and ranchers in the applicable region whose drought sale replacement period was scheduled to expire at the end of this tax year, Dec. 31, 2017, in most cases, will now have until the end of their next tax year. Because the normal drought sale replacement period is four years, this extension immediately impacts drought sales that occurred during 2013. But because of previous drought-related extensions affecting some of these localities, the replacement periods for some drought sales before 2013 are also affected.

Additional extensions will be granted if severe drought conditions persist.

Details on relief, including a list of NDMC-designated counties, are in Notice 2017-53, posted on IRS.gov.

More information on reporting drought sales and other farm-related tax issues can be found in Publication 225, Farmer’s Tax Guide, also available on the IRS web site.