IRS Extends Drought Relief to Farmers and Ranchers

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The Internal Revenue Service has issued guidance on an extension of tax relief for farmers and ranchers in most states and other regions who sold or exchanged livestock because of drought conditions. Those affected may take more time to replace their livestock and defer tax on any gains from the forced sales or exchanges.

Notice 2026-54 PDF lists the specified areas, by county or other jurisdiction, that qualify for federal assistance. The list includes 49 states, the District of Columbia, Puerto Rico, and other areas that reported exceptional, extreme or severe drought during the 12-month period ending on Aug. 31, 2026. Details and an example of how this provision works can be found in Notice 2006-82 PDF

Eligible farmers and ranchers should document that drought prompted the sales or exchanges, and that the area received a federal drought designation. Livestock must be replaced within a four-year period. The IRS is authorized to further extend this replacement period if the drought persists.

The tax relief generally applies to capital gains realized by eligible farmers and ranchers from sales or exchanges of livestock held for draft, dairy or breeding purposes. Sales of other livestock – such as those raised for slaughter or held for sporting purposes – and sales of poultry do not qualify.

Farmers and ranchers are eligible if their region is listed as suffering exceptional, extreme or severe drought conditions during any week between Sept. 1, 2025, and Aug. 31, 2026. This determination is made by the National Drought Mitigation Center. More information on reporting drought sales and other farm-related tax issues can be found in Publication 225, Farmer’s Tax Guide PDF, available on IRS.gov.