Rural tax resources provided for disaster loss

On Oct. 19, RightRisk released resources for producers providing information on tax implications of disaster losses and weather-related livestock sales. 

RightRisk provides risk management education for farmers and ranchers to understand, explore and evaluate risk management decisions. RightRisk team members include Jeff Tranel of Colorado State University, Jay Parsons of the University of Nebraska-Lincoln and John Hewlett of the University of Wyoming. 

“It is important farmers and ranchers have an understanding of how disasters affect their tax liabilities,” the resource document reads. “Producers may be able to reduce their tax liabilities by using various provisions within the Internal Revenue Code.” 

Disaster losses

Property value can be significantly impacted by losses from natural disasters such as fires, floods and freezes. The Disaster Losses and Related Tax Rules publication from Rural Tax Education provides examples to help explain tax rules, which apply to farm and ranch property including buildings, machinery, livestock, feed and supplies, as well as the home and personal vehicles. 

“In order to deduct a loss for personal-use property, the area in which the loss occurred must be declared a federal disaster area,” reads the Rural Tax Education document. “To determine the extent of a loss, the owner of the property needs to compare the property’s condition immediately before and after the event to determine the extent of the loss and whether the amount may be deductible against taxable income.” 

The article also recommends producers keep record containing full descriptions of casualty following a disaster, such as when the event occurred and proof losses were a direct result of the event. 

Examples of disaster loss tax rules provided include machinery and equipment, multi-purpose farm buildings, fences, breeding, dairy or draft livestock, livestock purchased for resale, raised livestock for sale, raised crops, plants and produce for sale, stored feed and grain and tools and supplies. 

Weather-related livestock sales

Producers are no strangers to fire and drought this year. Agricultural businesses impacted by fire and drought in 2020 may be eligible for two tax provisions to help cushion the consequences of selling livestock due to these weather-related events. 

“Under the first provision, livestock held for draft, breeding or dairy purposes and sold due to adverse weather are provided a specified reinvestment period,” reads the RightRisk article. “The second provision, which applies to all livestock other than poultry, allows cash basis taxpayers whose primary trade or business is farming to defer receipt from sales in excess of normal business practices due to weather-related conditions resulting in a disaster declaration area.” 

The related Rural Tax Education document shares both provisions have different requirements, so producers should evaluate the benefits of both to determine which would be of most benefit to their operation. The document also contains examples for raised and purchased animals, as well as increased calf sales due to weather-related conditions. 

Producers are encouraged to review both education documents for reasonable understanding of the tax rules and work with professional tax advisors should they qualify. 

Averi Hales is the editor of the Wyoming Livestock Roundup. Send comments on this article to roundup@wylr.net.