Mazuryk Mykola/Mykola Mazuryk – Fotolia
The Internal Revenue Service, in Notice 2025-52, explains when the four-year replacement period is extended for livestock sold due to drought.
Sec. 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 that would 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.
Sec. 1033(a)(2)(A) generally provides that gain from an involuntary conversion is recognized only to the extent that the amount realized on the conversion exceeds the cost of replacement property purchased during the replacement period. The replacement period generally ends four years after the close of the first taxable year in which any part of the gain from the conversion is realized.
This period, however, can be extended under certain conditions, including when the sale is due to such extreme weather as drought.
The appendix to 2025-52 contains a list of counties that experienced “exceptional, extreme or severe drought conditions” during the 12 months ending Aug. 31, 2025. This list includes counties in:
Alabama;Arizona;Arkansas;California;Colorado;Delaware;The District of Columbia;Florida;Georgia;Hawaii;Idaho;Illinois;Indiana;Iowa;Kansas;Kentucky;Louisiana;Maine;Maryland;Massachusetts;Michigan;Minnesota;Mississippi;Missouri;Montana;Nebraska;Nevada; New Hampshire;New Jersey;New Mexico;New York;North Carolina;North Dakota;Ohio;Oklahoma;Oregon;Pennsylvania;Rhode Island;Tennessee;Texas;Vermont;Virginia;Wisconsin;Wyoming; and, Guam.
