The Internal Revenue Service has extended tax relief for farmers and ranchers in 49 states, the District of Columbia, and other drought-affected regions. The guidance, issued in Notice 2025-52, provides additional time to replace livestock sold because of drought while deferring capital gains taxes on those sales.

The relief applies to areas that experienced exceptional, extreme, or severe drought during the 12-month period ending August 31, 2025, as determined by the National Drought Mitigation Center. Eligible taxpayers may defer recognizing gains from livestock sales prompted by these drought conditions.

According to the IRS, the replacement period extension gives farmers and ranchers until the end of their first tax year after the first drought-free year following the four-year replacement period to replace the livestock.

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Which Livestock Sales Qualify for Relief

The tax relief applies to capital gains from sales or exchanges of livestock held for draft, dairy, or breeding purposes. Sales of animals raised for slaughter, those held for sporting purposes, and poultry are not eligible.

Eligibility also requires that the sales or exchanges were directly prompted by drought conditions and that the taxpayer’s location received a federal drought designation.

The standard replacement period for livestock is typically two years. For drought-affected areas, the IRS provides an extended four-year period. Under Notice 2025-52, the replacement window may be extended further if drought conditions continue.

Extended Timeline for Livestock Replacement

Farmers and ranchers whose drought-sale replacement period was scheduled to expire at the end of 2025 now have until the end of their next tax year to replace the livestock. This extension applies to areas that experienced exceptional, extreme, or severe drought during any week between September 1, 2024, and August 31, 2025.

The IRS noted that additional extensions may be provided if drought conditions persist beyond the current relief period. The approach is intended to account for weather patterns and recovery timelines that may extend past standard tax planning periods.

Documentation and Compliance Requirements

Eligible farmers and ranchers must maintain records showing that livestock sales were related to drought conditions and occurred in federally designated drought areas.

The IRS points to several resources for compliance:

  • Notice 2006-82 — provides detailed examples and explanations of drought-related livestock sales.

  • Publication 225, Farmer’s Tax Guide — includes instructions on reporting drought sales and other agricultural tax matters.

These materials outline the documentation required to qualify for relief and the procedures for reporting deferred gains.

Source: IRS Extends Relief to Farmers and Ranchers Affected by Drought in 49 States, Other Regions