The IRS issued guidance on Sept. 22 that provides tax relief for farmers and ranchers in every state except for Alaska who sold or exchanged livestock because of drought conditions.
Under the guidance in Notice 2025-52, farmers and ranchers are allowed to take more time to replace their livestock and defer tax on any gains from the forced sales or exchanges.
The IRS said it provides this extension to eligible farmers and ranchers if the applicable region is listed as suffering “exceptional, extreme, or severe” drought conditions during any week between Sept. 1, 2024, and Aug. 31, 2025. This determination is made by the National Drought Mitigation Center.
The notice lists the applicable areas—by county or other jurisdiction—that qualify for federal assistance. The list includes 49 states, the District of Columbia, and other regions, such as Guam and the Northern Mariana Islands, that reported a severe drought during the 12-month period ending on Aug. 31, 2025.
According to the IRS, the tax relief generally applies to capital gains realized by eligible farmers and ranchers from sales or exchanges of livestock held for draft, dairy, or breeding purposes. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, and sales of poultry don’t qualify for the tax relief.
Eligible farmers and ranchers must show that drought prompted the sales or exchanges, and that the area received a federal drought designation, the IRS said. Generally, livestock must be replaced within a four-year period, instead of the usual two-year period. The agency said it’s authorized to further extend this replacement period if the drought persists.
The replacement period extension announced in the notice gives eligible farmers and ranchers until the end of their first tax year after the first drought-free year after the four-year replacement period to replace the sold or exchanged livestock.
As a result, eligible farmers and ranchers whose drought-sale replacement period was scheduled to expire at the end of 2025 will have until the end of their next tax year to replace the sold or exchanged livestock, the IRS said.
Photo credit: Castleski/Shutterstock
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Tags: capital gains, farmers, Income Taxes, IRS, ranchers, tax relief, Taxes
