IRS Extends Replacement Period for Livestock Sold Due to Drought, What Producers Need To Know for 2025 and Beyond

The IRS has issued Notice 2025-52, announcing another extension of the replacement period for livestock sold on account of drought. This relief applies to ranchers, farmers, and agricultural producers whose operations are located in regions that continued to experience exceptional, extreme, or severe drought during the 12 month period ending August 31, 2025.

This update is important for livestock owners who deferred gain under section 1033(e) and now need more time to replace animals without triggering taxable income.

Here's how the extension works and which areas qualify.

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Why Section 1033(e) Matters

Under section 1033(e), livestock owners can defer gain when they sell or exchange animals because of drought, flood, or other weather related disasters. When certain conditions are met, these sales qualify as an involuntary conversion, allowing farmers to postpone recognizing gain if they replace the animals within the required period.

Normally, this replacement period lasts four years after the year of the sale. However, if drought conditions continue, the IRS can extend the deadline on a regional basis.

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How the Replacement Period Extension Works

Under Notice 2006-82 and section 1033(e)(2)(B), the IRS extends the replacement period until the end of the producer's first taxable year after the first drought free year in the applicable region.

A drought free year means a 12 month period ending August 31 during which no part of the region experienced:

• Exceptional drought

• Extreme drought

• Severe drought

If any county in the producer's applicable region still shows these drought levels, the replacement window remains open.

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The IRS Confirms That the 12 Month Period Ending August 31, 2025 Is Not Drought Free

Notice 2025-52 includes a long appendix listing every county, parish, borough, and tribal area that experienced severe drought conditions between September 1, 2024 and August 31, 2025. Because these conditions continued, livestock owners in affected regions automatically qualify for extra time.

If your replacement period was scheduled to expire at the end of 2025 (or the fiscal year that includes August 31, 2025), your deadline is now extended until the end of the first taxable year following a future drought free year.

This means many producers will have at least one more year, and possibly more, before they must acquire replacement livestock to defer tax on earlier sales.

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Who Qualifies for the Extension

To qualify:

1. You must have sold livestock because of drought

2. The livestock must have been held for draft, breeding, or dairy purposes

3. The sale must have exceeded your normal business practices

4. Your operation must be located in a listed county or a county contiguous to it

The appendix of Notice 2025-52 covers hundreds of regions across nearly every U.S. state, including large portions of:

• Texas

• California

• Colorado

• Florida

• Georgia

• Kansas

• Nebraska

• Oklahoma

• Montana

• The Carolinas

• The Midwest and Great Lakes

• Pacific territories and island jurisdictions

If even one county in your applicable region appears on the list, the extension applies.

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How Producers Should Use This Additional Time

With the extended replacement period, agricultural producers should:

• Review prior year sales to identify any deferred gains

• Confirm whether their county or adjacent counties appear on the IRS list

• Track when the next drought free year occurs for future planning

• Coordinate with tax advisers to time livestock purchases appropriately

Since drought conditions remain widespread, many producers may ultimately have replacement periods lasting well beyond 2025.

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How Margen Helps Farmers and Ranchers Track Their Replacement Deadlines

Managing section 1033(e) deadlines can be challenging when drought maps, county designations, and replacement periods shift every year. Margen simplifies this by helping producers answer questions like:

• "Does my county qualify for the 2025 extension?"

• "When does my replacement deadline now end?"

• "How do I calculate recognized gain if I replace only part of my herd?"

• "Does this sale qualify as an involuntary conversion under section 1033(e)?"

Margen analyzes the IRS guidance, including the full county list in Notice 2025-52, and gives clear answers that help producers plan livestock purchases and avoid unexpected tax bills.

For full details, see IRS Notice 2025-52.