The Department of the Treasury and the Internal Revenue Service today issued proposed regulations for taxpayers who sell or exchange qualifying farmland to qualified farmers and elect to pay the tax on the gain in four equal annual installments.
Section 1062 of the Internal Revenue Code allows eligible taxpayers to spread payment of the tax attributable to gain from certain sales or exchanges of farmland over four years. The election applies to qualified sales or exchanges made in taxable years beginning after July 4, 2025.
“Farmers should have practical options when farmland is sold,” said IRS Chief Executive Officer Frank J. Bisignano. “The Working Families Tax Cuts helps keep farmland in agricultural use by allowing eligible sellers to spread their tax payments over four years when qualifying property is sold to active farmers.”
To qualify, the farmland must be real property located in the United States that was generally used by the taxpayer for farming purposes, or leased to a qualified farmer for farming purposes, during substantially all of the 10 years before the sale or exchange. The property must also be subject to a legally enforceable restriction that generally prevents it from being used for anything other than farming for 10 years after the sale or exchange. Additionally, the buyer must be an individual who is actively engaged in farming.
How the installment election would work
Taxpayers making the election would pay 25% of the applicable tax liability with each of four annual installment payments. The first payment would generally be due on the regular due date of the taxpayer’s federal income tax return, without regard to extensions, for the year of the sale or exchange. Each remaining payment would generally be due on the regular return due date for the following taxable year.
The proposed rules also address sales or exchanges by partnerships, S corporations, trusts and estates. In the case of a sale by a partnership or S corporation, partners and shareholders generally would make their own elections with respect to their share of the gain. Similar rules would apply when gain passes through a trust or estate to a beneficiary.
The proposed regulations also explain how taxpayers may satisfy the prior 10-year farming-use requirement in certain circumstances, including when farmland is temporarily taken out of production under a government program, as part of recognized farming practices or because of events outside the taxpayer’s control.
Request for comments on proposed regulations
Treasury and the IRS request comments on the proposed regulations. Written or electronic comments must be received by Nov. 30, 2026 in accordance with the instructions in the proposed regulations.
Under a traditional Section 453 installment sale, tax recognition is tied to receiving payments from the buyer over time. Under Section 1062, the buyer can pay 100% of the purchase price in cash at closing, and the seller can still elect to spread the resulting federal income tax liability into four equal 25% payments over four years.
The first 25% payment is due on the regular, unextended tax return filing deadline for the year the sale occurs. The remaining three 25% payments are due on the regular return due dates for each of the following three tax years. Extensions of time to file your tax return do not extend the due date for these installment payments.
No. To qualify, the buyer must be an individual who is actively engaged in farming under USDA standards (7 U.S.C. 1308-1). Sales to developers, commercial real estate firms, or passive corporate entities do not qualify for Section 1062 tax deferral.
To qualify for Section 1062 at closing, the farmland must be encumbered by a legally enforceable 10-year covenant or restriction prohibiting non-agricultural use. If this condition is not met at the time of the sale, the seller is ineligible for the four-year installment election.
If a partnership or S corporation sells the farmland, the election is made at the individual partner or shareholder level. Each partner or shareholder can independently decide whether to pay their portion of the gain’s tax liability in installments or as a lump sum. Similar rules apply to beneficiaries receiving pass-through gain from trusts or estates.
Suresh holds a Master of Commerce (M.Com) degree and is a dedicated personal finance researcher and writer. Combining his advanced academic background in commerce with deep industry research, he covers complex topics like taxation, banking systems, credit analysis, and personal finance strategies. As the founder of Tax Assistant (taxassistant.org), Suresh is committed to translating complicated financial guidelines and economic data into simple, accurate, and actionable educational resources for everyday readers.
