USDA "natural disaster" designation affects income taxes for farmers

Published: Apr. 4, 2018 at 10:27 AM EDT
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Low rain levels for the past eighteen months have left Shenandoah County dry, and it's hurting farmers.

In March, Shenandoah County was declared a "natural disaster area" by the USDA. Shenandoah County is the primary disaster area, but farmers in surrounding counties are eligible for assistance as well.

Senior Extension Agent for the Virginia Cooperative Extension, Bobby Clark, said the only thing that a disaster designation guarantees for farmers is the ability to apply for low-interest loans.

However, based on when this drought occurred, some farmers may be able to save money with their income taxes, thanks to the disaster designation.

"It hurt our pasture growth. It also hurt small grain establishment, as well as the establishment of any hay fields or pastures that farmers were seeding up," said Clark.

Some wells in the county also went dry, and groundwater levels dipped low.

"Farmers had to incur a lot of additional expense watering their livestock. And some had to sell their livestock," said Clark.

In a normal year, that livestock sale would count as taxable income.

Clark explained that income is "artificial," because many farmers will be purchasing more livestock.

"In a disaster year, they can forgo that income, because they just sold the cattle right now, and they're going to restock in the spring," said Clark.

With the number of livestock being sold, it's no small change!

"We're not talking 50 or 100 dollars, we're talking 50,000 or 100,000 dollars," said Clark. "That amount of tax burden would be a terrific hit in one year."

Things are starting to look up for the county.

"Groundwater is recovering which is a very good sign," said Clark. "I will not say we're out of the words. I would say we need another four or five inches of rain."

Continued rainfall in spring months will be important.

"If we get into June and we haven't had good rainfall to recharge our groundwater, we likely will not get that recharge all summer long," said Clark.

He explained that although summer in the Valley is not usually much drier than the winter, the rate of evaporation can cause dry summers.

Clark also said farmers who sold livestock that they were not planning to sell before the drought should talk to their accountant. He suggested they also look at their land use taxation system.