The Internal Revenue Service has issued guidance extending tax relief for farmers and ranchers in 49 states and other regions who were forced to sell or exchange livestock due to drought conditions, giving affected producers more time to replace their herds and defer taxes on gains from those sales.

Notice 2026-54 lists qualifying areas by county or jurisdiction and covers 49 states, the District of Columbia, Puerto Rico, and other areas that reported exceptional, extreme, or severe drought during the 12-month period ending August 31, 2026.

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"Large swaths of the United States continue to experience drought conditions, distressing hard-working American farmers and ranchers," said IRS Chief Executive Officer Frank J. Bisignano. "By extending relief for those who sell or exchange livestock, the IRS is providing much needed support to those who feed our nation."

The relief generally applies to capital gains from sales or exchanges of livestock held for draft, dairy, or breeding purposes. Sales of livestock raised for slaughter or sporting purposes, and sales of poultry, do not qualify.

To be eligible, farmers and ranchers must show that drought prompted the sales or exchanges and that their area received a federal drought designation. Livestock must generally be replaced within a four-year period rather than the usual two-year period, with the IRS authorized to extend that window further if drought persists.

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Eligible farmers and ranchers whose drought-sale replacement period was scheduled to expire at the end of 2026 will have until the end of their next tax year to replace the sold or exchanged livestock. The extension applies to any region listed as suffering exceptional, extreme, or severe drought conditions during any week between September 1, 2025, and August 31, 2026, as determined by the National Drought Mitigation Center.

Notice 2026-54 is available at https://www.irs.gov/pub/irs-drop/n-26-54.pdf. Details and an example of how this provision works can be found in Notice 2006-82 at https://www.irs.gov/pub/irs-drop/n-06-82.pdf. Additional information on reporting drought sales and other farm-related tax issues is available in Publication 225, Farmer's Tax Guide, at https://www.irs.gov/pub/irs-pdf/p225.pdf.