- Taxpayers may elect to spread the applicable net tax liability from qualified farmland sales over four equal annual installments, with the first due on the unextended return due date for the year of sale.
- Qualified farmland must be U.S. real property used or leased for farming during substantially all of the prior 10 years and subject to a recorded 10-year covenant restricting non-farm use.
- Acceleration events include failure to pay an installment, death of an individual taxpayer, or liquidation/sale of substantially all assets for certain entities.
Announcement and Effective Dates
On September 29, 2026, the Internal Revenue Service published a notice of proposed rulemaking in the Federal Register outlining detailed regulations for the election to pay in installments the tax on gain from certain farmland property sales.
The statutory election under new section 1062 of the Internal Revenue Code was created by the One, Big, Beautiful Bill Act enacted on July 4, 2025. It applies to qualified sales or exchanges occurring in taxable years beginning after that date.
The proposed regulations would clarify eligibility, definitions, payment timing, acceleration triggers, and proration rules for deficiencies. Written comments and hearing requests must be received by November 30, 2026.
Who Can Make the Election and What Qualifies
The election is available to taxpayers who sell or exchange qualified farmland property to a qualified farmer, resulting in an applicable net tax liability. Only the portion of net income tax attributable to the gain—limited to that liability—may be paid in four equal annual installments.
Qualified farmland property is U.S. real property that the taxpayer (or pass-through entity in which they hold an interest) used as a farm for farming purposes or leased to a qualified farmer for substantially all of the 10-year period ending on the sale date. It must also be subject to a legally enforceable covenant prohibiting non-farm use for the next 10 years.
Certain periods of non-use are disregarded if the land is maintained for farming under government programs, good farming practices, or due to uncontrollable events. Special rules allow tacking of prior use periods for property acquired in like-kind exchanges, reorganizations, or from a decedent. Partial use or covenants limit qualification to only the qualifying portion.
A qualified farmer is an individual actively engaged in farming under the specified federal agricultural definition. The buyer cannot qualify if there is a prearranged plan to transfer the property to a non-qualified, non-related person.
Payment Schedule and Acceleration Risks
If the election is made, the first installment is due with the taxpayer's return for the year of the qualified sale (without extensions). The next three installments follow on the unextended due dates of the subsequent three years' returns.
Acceleration can occur if an installment is not paid on time, triggering the full remaining balance. For individuals, any unpaid amounts become due with the return for the year of death. For C corporations, trusts, or estates, events such as liquidation, sale of substantially all assets, cessation of business, or bankruptcy can accelerate payments.
An exception allows a buyer assuming liability under an agreement with the IRS to continue the installments. Deficiencies in the applicable net tax liability are generally prorated across installments, except in cases of negligence, disregard, or fraud.
How the Election Is Made and Pass-Through Rules
The election must be made no later than the due date of the return for the taxable year of the sale, and a copy of the required covenant must be attached. For partnerships and S corporations, the election is made at the partner or shareholder level, with determinations of qualified property use made separately by each interest holder.
The proposed rules provide definitions for pass-through entities and address consolidated groups, ensuring the installment option aligns with existing tax frameworks while preventing abuse.
Questions Taxpayers Should Verify
Affected taxpayers should confirm whether their specific property meets the 10-year use test, covenant requirements, and buyer qualifications under the proposed definitions. They should also review how acceleration events or deficiencies could affect their payment schedule.
Readers with existing tax debt unrelated to this farmland gain provision should evaluate their situation separately from this new election. Republic Tax Relief offers a free, no-obligation initial consultation for individuals and businesses facing IRS or state tax issues; readers can contact the firm to discuss suitability, scope, fees, and availability of private tax-resolution help for their circumstances.
Announcement covered: Sep 29, 2026.
General information only, not individual tax, legal, or financial advice. Rules, deadlines, and eligibility depend on your circumstances. Check current official guidance or consult a qualified professional.
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