Understanding the tax specifics and implications of selling your beef herd | TSLN.com

Understanding the tax specifics and implications of selling your beef herd

Tom Holman
UNL Extension Educator

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.

Here are 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.

• 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 to 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 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