Tax Consequences of Selling Cows due to Fire Damaged Range

by John Deering, CSU Extension

High hay prices and scarce availability of replacement grazing resources may leave many affected by the fire considering selling their cattle and replacing them in the future.  This option is worthy of consideration, especially with the current high cattle prices.  However, the potential tax consequences of this decision should be understood as the sale of today’s high value animals could result in a considerable tax liability if not managed properly. 

For cases like the Heartstrong fire, where the operator has no control over the circumstances, the Internal Revenue Service provides for a two year period after the end of the first tax year in which any part of a sale of livestock took place due to an “Involuntary Conversion of Business Assets”.  In other words, December 31, 2014 would be the deadline to replace livestock sold as a result of the Heartstrong fire.  Also, it is important to properly report and document the assets that were involuntarily converted in case the tax return is reviewed. 

As always, it is important that you confer with your tax professional to be sure that the involuntary conversion exemption applies to your specific situation.  For more information, contact your tax professional and visit the tax topics link on the left side of the page at http://ruraltax.org to find fact sheets on various tax related topics including “Involuntary Conversion of Business Assets”. For more information, contact John Deering, Colorado State University Extension Agriculture and Business Management Specialist at 970-332-4151 (Wray), 970-345-2287 (Akron) or john.deering@colostate.edu