AMARILLO – Extreme weather conditions experienced during recent years have caused property damage and early livestock liquidations for many Texas agricultural producers, and as a result, tax implications, according to a Texas A&M AgriLife Extension Service specialist in Amarillo.
These unplanned events often create more revenue than usual in a given year, generating income tax issues, said DeDe Jones, AgriLife Extension risk management specialist. For example, in a typical year any gain on property loss reimbursement or the sale of livestock is subject to taxes.
Several options, including Internal Revenue Service Form 4684, IRS code 1033 and IRS code 451, are available to help farmers and ranchers deal with these weather-related issues in excess of normal business practices, Jones said. She encouraged producers to contact a tax accountant to determine the option that best fits their operation and business plan.
At the end of 2012, 90 percent of Texas counties had some form of drought designation and state reservoirs were only 66 percent full, she said. This situation fueled wildfires, ruined crops and pastures, and strained economic resources.
During the 2011-2012 season, approximately 41,823 fires scorched 4.15 million acres and 3,007 homes in Texas. Damages were particularly severe in the Panhandle region due to strong winds, unseasonably warm temperatures and low humidity, Jones said.
In addition, the price of hay increased by 200 percent during this time, causing feed costs to skyrocket, she said. These factors prompted Texas ranchers to severely cull their herds and sell off large numbers of cattle.
IRS Form 4684 allows producers to postpone reimbursement gains for up to four years, while IRS code 1033 pertains to draft, breeding or dairy animals that will be replaced within a given time period. The final alternative, IRS code 451, allows a one-year postponement in reporting sale proceeds on raised livestock.
Reporting casualty losses on IRS Form 4684 allows farmers and ranchers to defer any gains that result from insurance reimbursements for fire-related losses associated with fences, equipment, etc., Jones said. Producers have up to two years under normal circumstances and four years during times of disaster to utilize any money received for property restoration or replacement.
The replacement period begins on the date their property was damaged, destroyed or stolen, she said. It ends two or four years following the tax year in which the gain is realized. The four-year option is available only to those located in a federally declared disaster area.