The IRS announced significant tax relief on September 22, 2025, for farmers and ranchers who were forced to sell or exchange livestock due to drought conditions. The relief extends to applicable areas across 49 states, the District of Columbia, and other regions that experienced exceptional, extreme or severe drought during the 12-month period ending August 31, 2025.

Extended Time to Replace Livestock

The new guidance, detailed in Notice 2025-52, allows eligible farmers and ranchers additional time to replace their livestock and defer tax on any gains from forced sales or exchanges. This relief recognizes the financial strain that drought conditions place on agricultural operations and provides crucial flexibility during recovery periods.

Under normal circumstances, livestock must be replaced within two years to defer capital gains. However, this relief extends that period to four years for drought-affected operations. The IRS is also authorized to further extend this replacement period if drought conditions persist.

How the Extended Replacement Period Works

The replacement period extension gives eligible 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 sold or exchanged livestock.

What this means in practice: If your drought-sale replacement period was scheduled to expire at the end of 2025, you will now have until the end of your next tax year to replace the livestock.

This extension applies if your region experienced exceptional, extreme or severe drought conditions during any week between September 1, 2024, and August 31, 2025, as determined by the National Drought Mitigation Center.

Who Qualifies for Relief?

The tax relief generally applies to capital gains realized from sales or exchanges of livestock held for draft, dairy or breeding purposes.

What’s Covered:

• Draft animals
• Dairy livestock
• Breeding stock

What’s NOT Covered:

• Livestock raised for slaughter
• Livestock held for sporting purposes
• Poultry

Eligibility Requirements

To qualify for this relief, farmers and ranchers must demonstrate:

1. Drought prompted the sales or exchanges – The decision to sell livestock must be directly connected to drought conditions
2. The area received federal drought designation – Your county or jurisdiction must be listed in Notice 2025-52
3. Livestock type qualifies – Only draft, dairy, or breeding livestock are eligible

Nationwide Impact

Notice 2025-52 lists applicable areas by county or jurisdiction across an expansive geographic range, reflecting the widespread nature of recent drought conditions. The fact that 49 states qualify for this relief underscores the severity and reach of drought impacts on American agriculture.

Additional Resources

The IRS provides detailed information to help farmers and ranchers navigate this relief:

• Notice 2006-82 – Contains details and examples of how the livestock replacement provision works (available on IRS.gov)
• Publication 225, Farmer’s Tax Guide – Offers comprehensive information on reporting drought sales and other farm-related tax issues (available on IRS.gov)

Why This Relief Matters

Drought forces difficult decisions on farmers and ranchers. When pastures dry up and feed becomes scarce or prohibitively expensive, selling breeding stock may be the only viable option to maintain operations. However, without tax relief, the immediate tax burden from those forced sales can compound an already challenging situation.

By extending the replacement period and allowing tax deferral, the IRS acknowledges that recovering from drought takes time. Farmers and ranchers need adequate time to rebuild their herds once conditions improve, and this relief provides that critical breathing room.

Take Action

If you’re a farmer or rancher who sold livestock due to drought conditions:

1. Review Notice 2025-52 to confirm your area qualifies
2. Consult Publication 225 for guidance on properly reporting drought sales
3. Work with a tax professional familiar with agricultural taxation to ensure you maximize available relief
4. Document the connection between drought conditions and your livestock sales

This relief represents important recognition of the challenges facing America’s agricultural producers. Make sure you understand how it applies to your operation and take full advantage of the extended timeline to rebuild your herd when conditions allow.

For complete information, visit IRS.gov and search for Notice 2025-52 and Publication 225.