Drought verses Income Taxes

[cowboy43]

A lot of ranchers have sold out because of the drought, adding tens of thousands of dollars to your yearly income, depending on how many cattle are being sold, I have heard of some selling hundreds of head. At 30% tax charge that could add up to $300 a head income tax. I had to sell out in 2008 and it cost me a lot of extra tax, because the extra income way ouweights your deductions. How do you that are in this situation handle this situation :?: :help:

 

[Oldtimer]

If I remember right my accountant told me a couple of years ago when we had drought problems that there was a way to set aside/exempt paying taxes on the income from cattle that you were forced to disperse because of drought or a disaster....But you had to use it to restock within a certain time period (2 years ?)

I never had to sell any- so never followed thru on it...But it is worth talking to your accountant/tax folks about....

 

[TennesseeTuxedo]

Good advice Oldtimer. I wouldn't be surprised if there is some kind of loophole created to aid a fella in a situation like this.

 

[1982vett]

Good advice Oldtimer. I wouldn't be surprised if there is some kind of loophole created to aid a fella in a situation like this.

If I remember right my accountant told me a couple of years ago when we had drought problems that there was a way to set aside/exempt paying taxes on the income from cattle that you were forced to disperse because of drought or a disaster....But you had to use it to restock within a certain time period (2 years ?)

I never had to sell any- so never followed thru on it...But it is worth talking to your accountant/tax folks about....

Better check that out with your CPA before using this advice.....it is not what I understand it to be.....

And as far as I know.....top capital gains is 15%......however those gains can push your other income into a higher bracket...

 

[TennesseeTuxedo]

The way I read the advice was to check with a cpa.

 

[Oldtimer]

The more I think about it - I think your area had to have been declared a disaster area- and it may have been tied to the disaster declaration....

But yeah- I wouldn't try anything until I got the go ahead from the CPA ....

 

[1982vett]

Check it out at http://www.irs.gov
search drought relief....this is from October 2010........not effective for 2011

Extension of Replacement
Period for Livestock Sold
on Account of Drought in
Specified Counties
Notice 2010–64
SECTION 1. PURPOSE
This notice provides guidance regarding
an extension of the replacement period
under § 1033(e) of the Internal Revenue
Code for livestock sold on account of
drought in specified counties.
SECTION 2. BACKGROUND
.01 Nonrecognition of Gain on Involuntary
Conversion of Livestock. Section
1033(a) generally provides for nonrecognition
of gain when property is involuntarily
converted and replaced with property
that is similar or related in service or use.
Section 1033(e)(1) provides that a sale or
exchange of livestock (other than poultry)
held by a taxpayer for draft, breeding, or
dairy purposes in excess of the number
thatwould be sold following the taxpayer's
usual business practices is treated as an
involuntary conversion if the livestock is
sold or exchanged solely on account of
drought, flood, or other weather-related
conditions.
.02 Replacement Period. Section
1033(a)(2)(A) generally provides that gain
from an involuntary conversion is recognized
only to the extent the amount
realized on the conversion exceeds the
cost of replacement property purchased
during the replacement period. If a sale
or exchange of livestock is treated as an
involuntary conversion under § 1033(e)(1)
and is solely on account of drought, flood,
or other weather-related conditions that result
in the area being designated as eligible
for assistance by the federal government,
§ 1033(e)(2)(A) provides that the replacement
period ends four years after the close
of the first taxable year in which any part
of the gain from the conversion is realized.
Section 1033(e)(2)(B) provides that the
Secretary may extend this replacement period
on a regional basis for such additional
time as the Secretary determines appropriate
if the weather-related conditions
that resulted in the area being designated
as eligible for assistance by the federal
government continue for more than three
years. Section 1033(e)(2) is effective for
any taxable year with respect to which the
due date (without regard to extensions) for
a taxpayer's return is after December 31,
2002.
SECTION 3. EXTENSION OF
REPLACEMENT PERIOD UNDER
§ 1033(e)(2)(B)
Notice 2006–82, 2006–2 C.B. 529, provides
for extensions of the replacement period
under § 1033(e)(2)(B). If a sale or exchange
of livestock is treated as an involuntary
conversion on account of drought
and the taxpayer's replacement period is
determined under § 1033(e)(2)(A), the replacement
period will be extended under
§ 1033(e)(2)(B) and Notice 2006–82 until
the end of the taxpayer's first taxable year
ending after the first drought-free year for
the applicable region. For this purpose, the
first drought-free year for the applicable
region is the first 12-month period that (1)
ends August 31; (2) ends in or after the last
year of the taxpayer's 4-year replacement
period determined under § 1033(e)(2)(A);
and (3) does not include any weekly period
for which exceptional, extreme, or severe
drought is reported for any location in the
applicable region. The applicable region
is the county that experienced the drought
conditions on account of which the livestock
was sold or exchanged and all counties
that are contiguous to that county.
A taxpayer may determine whether
exceptional, extreme, or severe drought
is reported for any location in the applicable
region by reference to U.S.
Drought Monitor maps that are produced
on a weekly basis by the National
Drought Mitigation Center. U.S.
Drought Monitor maps are archived at
http://www.drought.unl.edu/dm/archive.html.
In addition, Notice 2006–82 provides
that the Internal Revenue Service will
publish in September of each year a list
of counties, districts, cities, or parishes
(hereinafter "counties") for which exceptional,
extreme, or severe drought was
reported during the preceding 12 months.
Taxpayers may use this list instead of
U.S. Drought Monitor maps to determine
whether exceptional, extreme, or severe
drought has been reported for any location
in the applicable region.
The Appendix to this notice contains
the list of counties for which exceptional,
October 12, 2010 421 2010–41 I.R.B.
extreme, or severe drought was reported
during the 12-month period ending August
31, 2010. Under Notice 2006–82,
the 12-month period ending on August 31,
2010, is not a drought-free year for an applicable
region that includes any county on
this list. Accordingly, for a taxpayer who
qualified for a four-year replacement period
for livestock sold or exchanged on account
of drought and whose replacement
period is scheduled to expire at the end of
2010 (or, in the case of a fiscal year taxpayer,
at the end of the taxable year that includes
August 31, 2010), the replacement
period will be extended under § 1033(e)(2)
and Notice 2006–82 if the applicable region
includes any county on this list. This
extension will continue until the end of the
taxpayer's first taxable year ending after a
drought-free year for the applicable region.
SECTION 4. DRAFTING
INFORMATION
The principal author of this notice is
Sue-Jean Kim of the Office of Associate
Chief Counsel (Income Tax & Accounting).


The list for qualifying counties should be published in September....

Does say non-recognition of gains.......but sooner or later you spend the money replacing the property or pay taxes.....

 

[Isomade]

I sat with my accountant and we called the IRS. As it stands for us we can sell cows with no tax as long as we buy back in within 2 years. Don't know if it's tied to our being a disaster area or not.

 

[backhoeboogie]

Capital, capital gains, profit, and income are four different things. A CPA can explain it.

Corporations pay dividends on profits, they don't pay dividends on capital.

 

[TexasBred]

I sat with my accountant and we called the IRS. As it stands for us we can sell cows with no tax as long as we buy back in within 2 years. Don't know if it's tied to our being a disaster area or not.

Did the same thing a while back. Took him all the details and told him to figure it out by tax time. Since I already sold and it wasn't really drought related we'll just have to pay whatever the bill comes to.

I probably need to go and set up everthing in such a way as to qualify for some of the next "stimulus" money. Make some walking trails or something at about $150 a runninig foot. Already got the trails. Just gotta designate them and put up a sign. :cowboy: Won't create any jobs but I can claim that it probably saved several hundred.

 

[Isomade]

Had a new release today TB that states that in a disaster area they are actually allowing 4 years for buy back. Noble foundation released it in their new publication and it includes Texas. I dont know if its on their web site or not but I can fax it to you if you want. I just scanned thru it but said something to the effect of 2 years for drought and 4 years for natural disaster area.