Generally, livestock sold due to drought must be replaced within four years. Under the latest extension, farmers and ranchers who had sold livestock due to drought, with replacement periods scheduled to expire by the end of 2025, will now have until the end of the 2026 tax year to make replacements.

Tax gains made from such sales or exchanges can be deferred, the agency said.

The relief applies to "capital gains realized by eligible farmers and ranchers from sales or exchanges of livestock held for draft, dairy, or breeding purposes. Sales of other livestock—such as those raised for slaughter or held for sporting purposes—and sales of poultry do not qualify," the agency said.

The tax relief applies to "49 states, the District of Columbia, and other regions that reported exceptional, extreme, or severe drought during the 12-month period ending on Aug. 31, 2025," it said.

To get the tax relief, applicants must prove that the sale or exchange of livestock was prompted by drought, with their areas covered under the federal drought designation, according to the IRS.

The tax relief comes at a time when the Western United States is experiencing "widespread drought conditions," according to a Sept. 3 post by the National Integrated Drought Information System.

This year, 65.5 percent of the Western United States has been in drought, and 14 percent has reeled under "Extreme or Exceptional" drought, it said.

"Current drought coverage and intensity pales in comparison to peak drought conditions in the early 2020s—59.5 percent of the West was in Extreme or Exceptional Drought (D3-D4) in July 2021," the post said.

"This record-setting Western U.S. drought in the early 2020s, plus the southwestern megadrought dating back to 2000, has left Western U.S. water supplies in a perilous position."