Sell Farmland? IRS Lets You Pay Taxes in Four Easy Installments
Published Date: 9/29/2026
Proposed Rule
Summary
If you sell qualified farmland to a qualified farmer, you can now choose to pay the tax on your profit in four easy yearly payments instead of all at once. This new rule helps farmers and sellers manage their money better after a sale. Make sure to share your thoughts or ask for a hearing by November 30, 2026!
Analyzed Economic Effects
8 provisions identified: 1 benefits, 5 costs, 2 mixed.
Pay Farm-Sale Tax Over Four Years
If you sell qualified farmland to a qualified farmer, you may elect to pay the tax on the gain in four equal annual installments (25% each year) instead of all at once. The election applies to the portion of your net income tax equal to your "applicable net tax liability."
Installments Can Be Accelerated by Events
If certain events occur after you elect (for example, an addition to tax for a missed installment, your death for individuals, liquidation or sale of substantially all assets or cessation of business for C corporations, or other listed events), the unpaid portions of all remaining installments become due immediately unless an eligible transferee exception applies.
10-Year Use Rule and Required Covenant
To qualify, the property must have been used as a farm (or leased to a qualified farmer) for substantially all of the prior 10-year period, be located in the United States, and be subject to a recorded section 1062 covenant that bars non-farm use for 10 years and is attached to your return. If you fail to attach the covenant to the return, the property will not qualify for the election.
First Installment Due When Return Is Due
If you make the election, the first 25% installment is due on the due date for your federal income tax return without regard to extensions (for a calendar-year individual, on or before April 15). Each later installment is due on the normal return due date in the following years. Special rules treat certain U.S. citizens/residents abroad or service members as having a due date on the 15th day of the sixth month following the prior taxable year.
Deficiencies Are Prorated; Fraud Exception
If a deficiency is assessed with respect to your applicable net tax liability, the deficiency is prorated among the installments: amounts allocated to future installments are due with those installments; amounts allocated to already-past installments are due on notice and demand. But if the deficiency is due to negligence, intentional disregard, or fraud to evade tax, the full deficiency (plus interest and penalties) is due immediately on notice and demand.
Buyer Assumption Option with Transfer Agreement
If a qualifying transferee (a single U.S. person who is not a partnership or S corporation, is not a title 11 debtor, and is not insolvent) buys substantially all assets that trigger acceleration, the buyer can assume the seller's remaining installment obligations by timely filing a transfer agreement (Form 1062-T) signed under penalties of perjury, generally within 30 days of the acceleration event.
Pass-Through Entities and Owner-Level Elections
If a partnership, S corporation, trust, or estate realizes gain, the election is made at the partner, shareholder, or beneficiary level. Pass-through entities must prepare and give owners a Schedule A (Form 1062) and the covenant, and report each owner's allocable share on Schedule K-1; if the pass-through fails to comply, its owners are ineligible to make the election. A pass-through with an entity-level applicable net tax liability can elect for the entity itself.
Form, Filing, and Revocation Rules
To make the election you must file Form 1062 and Schedule A (Form 1062) with your return (or follow IRS guidance). A pass-through typically files only Schedule A and must supply owners the schedule and covenant. Once made, you can revoke the election only by paying the full remaining unpaid applicable net tax liability.
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Key Dates
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