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For tax years beginning on or after January 1, 2002, but prior to January 1, 2004, an income tax credit is available to qualified taxpayers who defer income from the sale of livestock due to drought, flood, and other severe weather related conditions on the federal income tax return. The credit is 4.63% of the amount of income actually deferred.
The Colorado credit is based on the deferral of income allowed on the federal return under section 451(e) of the federal I.R.S. Code. Cash basis farmers can elect a one-year deferral to report income from the sale of certain livestock due to drought, flood, or other weather related conditions. The drought, flood, or other weather related conditions must be such that the taxpayer's area is designated eligible for federal assistance. The credit is based on the amount of income deferred from the sale or exchange of livestock that normally would not have been sold during the tax year had it not been for the weather related conditions. If a taxpayer elects not to take the federal deferral of income, they will not qualify for the Colorado credit. To claim the credit, a taxpayer's principal trade or business must be farming and they must be cash basis taxpayers. Accrual method taxpayers do not qualify for the deferral or credit. If the credit claimed exceeds the net tax liability for the year, the excess credits may be carried forward for up to five years.
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