IRS extends relief to farmers and ranchers affected by drought in 49 states, other regions

IR-2025-93, Sept. 22, 2025

WASHINGTON - The Internal Revenue Service today issued guidance that provides tax relief for farmers and ranchers in applicable states and regions who sold or exchanged livestock because of drought conditions.

Under the guidance, farmers and ranchers may take more time to replace their livestock and defer tax on any gains from the forced sales or exchanges.

Notice 2025-52 PDFlists the applicable areas, by county or other jurisdiction, that qualify for federal assistance. The list includes 49 states, the District of Columbia and other regions that reported exceptional, extreme or severe drought during the 12-month period ending on Aug. 31, 2025.

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.

Eligible farmers and ranchers must show that drought prompted the sales or exchanges, and that the area received a federal drought designation. Generally, livestock must be replaced within a four-year period, instead of the usual two-year period. The IRS is authorized to further extend this replacement period if the drought persists.

The replacement period extension announced in the notice gives eligible farmers and ranchers until the end of their first tax year after the first drought-free year after the four-year replacement period to replace the sold or exchanged livestock. As a result, eligible farmers and ranchers whose drought-sale replacement period was scheduled to expire at the end of 2025 will have until the end of their next tax year to replace the sold or exchanged livestock.

The IRS provides this extension to eligible farmers and ranchers if the applicable region is listed as suffering exceptional, extreme or severe drought conditions during any week between Sept. 1, 2024, and Aug. 31, 2025. This determination is made by the National Drought Mitigation Center.

Details and an example of how this provision works, can be found in Notice 2006-82 PDF, available on IRS.gov.

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.