Livestock tax issues
There are special federal income tax provisions intended to reduce the impact of distressed sales of livestock in “excess” of normal, says Patrick. Those are section 451-e which allows postponement of the reporting of taxable gains on the sale of additional livestock, and section 1033-e which allows the avoidance of paying taxes on the gain realized from the sale of breeding, draft or dairy animals if they are replaced within a specified time period.
Patrick says livestock producers in a county eligible for federal disaster assistance may be able to participate if the drought caused a sale of livestock. And he adds, “Sales in excess of a farmer’s normal business practice can be deferred until the animals normally would have been sold.”
A producer can cut the size of the herd because of lack of feed, and then re-invest when there are better conditions. But reporting of the gain on the income can only be deferred if there is a replacement of the stock. There is also some flexibility on the time and replacement property which tax preparers can help with.
The drought disrupted many farming practices, but the Internal Revenue Service Code does recognize such disruptions and addresses them to the benefit of many farmers. For the 2012 drought, many producers may be able to benefit from the reporting of crop insurance indemnity checks and the untimely sale of livestock due to lack of forage.
Source: FarmGate blog