Digging out of Drought – Tips that Can Help Keep you from Breaking the Bank


Drought, whether recurring or a single-year event is on every Farming or Ranching Risk Management checklist.

·        Jun 23, 2017 – HELENA, Mont. (AP) — Gov. Steve Bullock declared a drought emergency in 19 counties in eastern Montana and two Native American reservations

·        Sep 7, 2017 – “This is as dry as it's been in recorded history and some of our recording stations have 100 years of data”. A lot of people try to compare this to previous years, but really, you just can't. By late August 2017 US Drought Monitor classified all of Montana in some stage of drought, with 65{ff5548eb8b7551781742a29b9864cd1703b3791f37ac9790ae42b0c6a6bb7d63} of the state in extreme or exceptional drought.

The farmer/rancher, affected by the widespread 2017 Montana area drought, has several tax-reporting choices for weather-related 2017 agricultural income shown on their tax returns.Talk with your tax return preparer about these possible tax return elections:

·        Sales of Extra Livestock:

One- year income deferral of excess livestock sales proceeds, from 2017 to 2018, maybe available. The producer must operate in, directly adjacent to a county, or have his/her operations affected by a weather-related federal disaster declaration area. Also the producer must retain evidence of the quantity of animals sold in excess of his/her specific normal business practices. This provision applies to sales of breeding animals, as well as yearlings or calves and is computed based on number of extra head sold.

·        Sale & Replacement of Extra Breeding Animals:

Replacement of extra breeding animals sold, as an alternative to the above one-year deferral option, may qualify for favorable deferred income treatment.  The purchase of at least the same number of head of replacement breeding animals of a like kind must occur within 2 years. This deferral provision is only available for the number of animals sold in excess of normal business practices. Both raised or purchased breeding stock can qualify.  If the planned replacement within 2 years does not occur, then the farmer/rancher must amend the tax return for year of the original sale.  This amended tax return reports the income; tax and accrued interest may be owed.

·        Taxpayer-favorable:

Declaration of a disaster area is not required for this 2nd option for deferral of income from sale of extra breeding animals. For example: weather-related limited forage or feed supplies conditions may qualify. Further, the 2 year replacement period can be extended if the drought or other weather condition persists beyond 3 years.

·        Governmental agricultural program payments to livestock producers, such as the Livestock Forage Disaster Program (LFP) and Livestock Indemnity Program (LIP) are taxable in the year received. It is important to watch for the application deadlines for these agricultural government payments.

·        Income deferral of crop insurance proceeds may be available to the extent related to income which would have normally been received and reported in the next year. Again your historical business practices will be used to compute the deferrable portion of the insurance proceeds, which are attributable to extra quantities of grain or crop income realized.

·        Nontaxable treatment of property insurance reimbursement used to replace lost livestock, damaged fencing or crops continues to be available, with or without weather-related conditions.

However, the replacement property purchased is only eligible for expensing or depreciation to the extent the replacement cost exceeds the insurance proceeds received.

               Below is a map showing areas eligible for favorable tax treatment of drought related income in the fifty-two (52) Montana and thirty –five (35) North Dakota Counties.  These primary and contiguous counties were designated as experiencing 2017 severe drought conditions. 


Refer to the US, color-coded, map with all 2017 Secretarial Drought Designations:   https://www.fsa.usda.gov/programs-and-services/disaster-assistance-            program  


by Joy Culver

Content Sponsored by Eide Bailly

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