The Internal Revenue Service on Sept. 15 issued guidance extending tax relief for farmers and ranchers in 49 states, the District of Columbia, Puerto Rico, and other regions who sold or exchanged livestock because of drought conditions. The relief allows more time to replace livestock and defer taxes on gains from forced sales or exchanges.
According to the guidance in Notice 2026-54, the tax relief applies to capital gains from sales or exchanges of draft, dairy, or breeding livestock. Sales of livestock raised for slaughter, held for sporting purposes, or poultry sales do not qualify. Farmers and ranchers must demonstrate that drought prompted the sales and that their area received a federal drought designation.
The replacement period generally extends to four years, up from the usual two years. If drought persists, the IRS may extend this period further. Farmers whose replacement period was scheduled to end in 2026 will now have until the end of their next tax year to replace the livestock.
The extended relief applies to areas with exceptional, extreme, or severe drought during the 12-month period ending Aug. 31, 2026, as determined by the National Drought Mitigation Center.