Tax Help for Ranchers Forced to Sell Herds Due to Drought

Following the liquidation of cowherds in states like Texas, New Mexico and Oklahoma in 2011 - many ranchers found they had excessive income. A similar situation is now facing ranchers in other states that suffered severe drought this year. Fortunately - AgriLife Extension Economist Stan Bevers says there are IRS regulations that give drought stricken ranchers a break. IRS Section 1033 provides livestock producers with flexibility in having to declare these cow sales as income for 2012. Bevers says this provision means producers can postpone the gain on the abnormal sales of breeding cows as income. Proceeds from the sales due to the drought must be used to repurchase the same type of females. But with Section 1033 - he says a typical two-year designation can be extended to four years. Ranchers forced to sell weaned calves that normally would have been sold the following year can use IRS section 451 to postpone recognition of income from one year to the next. Bevers says producers need to consult with their accountants and other financial advisors to determine the best approach due to the specifics involved if they use this deferral method.

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