RANCHING Business
The Tax Implications of Drought M
UCH OF THE U.S. EXPERIENCED ABNORMALLY DRY conditions this year and it was especially severe in the Southwest, where 108 Texas
counties were designated as natural disaster areas at the beginning of this year. Economists estimate more than $7.6 billion in lost
revenues in Texas over the past 36 months, where low moisture fueled wildfi res and ruined crops and pastures. And with the price of hay increasing by 200 percent during this time, Texas ranchers were forced to severely cull their herds and sell off large numbers of cattle in auctions. These losses and any unexpected revenue may have
implications at tax time, according to DeDe Jones, Agri- Life Extension risk management specialist in Amarillo. This situation poses several fi nancial management
challenges, Jones said. In a typical year, any gain on property loss reim-
bursement, such as insurance payments or the sale of livestock, is subject to taxes. However, under these unusual circumstances, Jones says additional options should be explored.
60 The Cattleman December 2014 Several options, including Internal Revenue Service
Form 4684, IRS code 1033 and IRS code 451, are available to help farmers and ranchers deal with these weather- related issues in excess of normal business practices, said Jones. She encouraged producers to contact a tax accountant to determine the option that best fi ts their operation and business plan. The fi rst option, IRS Form 4684, allows producers
to postpone reimbursement gains for up to four years. The second, IRS code 1033, pertains to draft, breeding or dairy animals that will be replaced within a given time period. The fi nal alternative, IRS code 451, allows a one-year postponement in reporting sales proceeds on raised livestock. Reporting casualty losses on IRS Form 4684 allows
farmers and ranchers to defer any gains that result from insurance reimbursements for fi re-related losses associated with fences, equipment, etc. Producers have up to two years under normal cir-
cumstances and four years during times of disaster to utilize any money received for property restoration or replacement. The replacement period begins on the
thecattlemanmagazine.com
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