The IRS and Treasury issued proposed regulations September 28 on a narrow tax election for qualifying sales or exchanges of farmland to an individual actively engaged in farming. Section 1062 allows an eligible seller to pay the tax attributable to the gain in four equal annual installments, rather than all at once. That does not mean the entire sale price is tax-free or that every land sale qualifies.
According to the IRS release, eligible U.S. real property generally must have been used for farming, or leased to a qualified farmer, during substantially all of the preceding 10 years. A legally enforceable restriction must generally keep the property in farming for 10 years after sale. The buyer must be an individual actively farming. Qualifying transactions are in taxable years beginning after July 4, 2025.
The proposal says each installment would be 25% of the applicable tax liability. The first would generally be due by the regular return due date for the sale year without regard to extensions; later installments would be due on following years' regular return due dates. Proposed rules also explain pass-through entities and temporary gaps in farming use. The IRS is taking comments through November 30, 2026. A seller considering this election should review current statute, the proposal and their specific facts with a tax professional before closing.