What is in this article?:
- Income tax considerations for drought-related sales of livestock
- Election to defer
- The historic drought has forced many more cows than normal to be sold throughout Texas.
- Producers are advised to consult their financial professional for advice that best fits their operation and business plan.
- If weather-related sales cause a producer to sell livestock, the gain on sale can be postponed.
Election to defer
Pena said the election to defer the recognition of gain is made by not reporting the deferred gain on the tax return. “A statement should be attached to the tax return indicating the existence of the weather-related conditions, the computation of the amount of the gain realized on the sale or exchange, the number and kind of livestock sold or exchanged and the number of livestock of each kind that would have been sold or exchanged under the usual business practice in the absence of the weather-related condition.”
Another scenario involves sales of livestock inventory. Pena said if inventory of livestock (calves, stockers, etc.) are sold because of weather-related conditions, the taxpayer may postpone reporting of the income for one year. “To qualify for this election, the taxpayer must show that his/her principal business is from farming or ranching; use the cash method of accounting; show that the livestock would normally have been sold in a subsequent year; and that the sale of livestock was caused by weather conditions from an area (county declaration or contiguous county) officially declared as a disaster area. The sale can take place before or after an area is declared a disaster area as long as the same disaster caused the sale.”
The amount of income that can be postponed is the income generated from the excess amount of livestock sold as a result of weather-related causes, Pena said. “For example, if a rancher sells 150 head of livestock due to weather-related causes instead of a usual average of 100 head, the income generated from the sale of the extra 50 head may be postponed to the following year.”