Livestock Sales Due to Drought, Flood or Other Weather-Related Conditions
A. Deferral of Gain
The gain from the sale of livestock sold early due to drought, flood, or other weather-related conditions may be deferred for one year. (Before 1997, the deferral opportunity was available only for forced sales due to drought.)
The livestock can be either raised or purchased, and may be held either for resale or productive use. However, animals held for productive use may also be eligible for Section 1033 involuntary conversion treatment.
Only livestock in excess of the number, which normally would have been sold under usual practices, is treated as an involuntary conversion. The cost of replacement livestock is reduced by the gain from the involuntary conversion. The gain is deferred over the life of the replacement property through a lesser amount of depreciation expense on the replacement animals.
The gain from the sale of livestock due to a drought, flood, or other weather conditions may be deferred if:
· The taxpayer’s principle business is farming;
· The cash method of accounting is used;
· Under normal business practices, the sale would not have occurred in the current year except for the drought, flood, or other condition; and
· The drought, flood, or other condition resulted in an area designated as eligible for assistance by the federal government.
The gain to be postponed is equal to the total income realized from the sale of all livestock, divided by the total head sold, and multiplied by the excess number of head sold due to the drought or other condition (number of head sold in current year less average head sold in three most recent years).
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