Make Yourself Aware Of The Tax Implications Of Selling Beef Herd

Here are tips cattle producers can use to avoid recapturing tax obligations.

Published on: Jun 26, 2013

Anyone who sold cows and bulls as a result of drought and elected to defer income has probably settled their 2012 tax bill, assuming they are on a cash basis for taxes, says Tom Holman, University of Nebraska-Lincoln Extension educator.

He provides some reminders of what producers must do to avoid recapturing tax obligations, as well as some thoughts on herd management during a drought:

•There may be an opportunity to use drought sales in 2013 if drought persists. There must be a drought designation by USDA Farm Service Administration, or a producer must prove drought exists based on forage supply in 2013 versus historical production.

•Selling down of calves, yearlings or breeding stock may qualify for tax deferment, depending on IRS regulations.

Make Yourself Aware Of The Tax Implications Of Selling Beef Herd
Make Yourself Aware Of The Tax Implications Of Selling Beef Herd

•When the drought breaks, it is not the time to immediately restock unless pastures are available that have not been grazed for two years.

•The IRS allows producers four years to replace cows and bulls, or else amend their 2012 return and pay a higher capital gains tax. Raised replacements do not qualify for tax purposes. Therefore, let pastures rest for one to two years. In the meantime, watch cow and bull sales closely.

•When pastures return, communicate with other buyers exactly what is desired for replacements (age, breed, weight, condition score, bred or open, and maximum price).

•This may be an excellent opportunity to bring partners into the operation, either inside or outside the family, with less capital investment by selling home-raised replacements to them. Anyone who does so should consult their accountant for tax implications that can be taken advantage of.

•Consider putting cows and bulls in a dry lot on a limit-fed basis, either at home or with a feed yard.

•This may be an opportunity to make changes in an operation by buying or retaining calves and selling stockers or finish-feeding your own cattle. These options provide more year-to-year flexibility for pastures.

Two articles that offer useful information are available on the UNL Beef web site, beef.unl.edu:

•Tax Consequences to Drought

•Options for Tax Planning for Livestock Producers Due to the 2012 Drought Disaster Designation