IRS Proposes Farmland Sale Installment Tax Rules, Comments Due November 30, 2026

On September 29, 2026, the Internal Revenue Service (IRS) and the Treasury Department published proposed regulations on a new election for farmland sellers. The election allows the income tax on gain from selling qualified farmland to a qualified farmer to be paid in four equal annual installments. Comments and public hearing requests are due November 30, 2026.

What the Proposed Farmland Installment Rules Cover

The proposed rules implement section 1062 of the Internal Revenue Code, which section 70437 of Public Law 119-21 added on July 4, 2025, for qualified sales in taxable years beginning after that date.

Each installment equals 25 percent of the seller's applicable net tax liability, which is the added income tax for the year that results from the gain on the qualified sale.

The first installment is due on the original return due date for the year of the sale, without regard to extensions. For a calendar-year individual, that date is April 15 even when the return is extended to October 15.

Sellers would make the election by filing Form 1062 and Schedule A (Form 1062) with the return. Once made, the election may be revoked only by paying the full unpaid balance.

The Section 1062 Covenant and Qualified Farmer Requirements

Qualified farmland property is real property in the United States that the seller used as a farm, or leased to a qualified farmer for farming purposes, during substantially all of the 10 years ending on the sale date. The property must also be subject to a covenant barring any use other than farming for 10 years after the sale, and a copy must be attached to the seller's return.

Under the proposed rules, the covenant must be signed before or at closing and recorded in the local land records no later than the deed. It must run with the land and bind the buyer and later owners for at least 10 years.

A qualified farmer is an individual actively engaged in farming under 7 U.S.C. 1308-1(b) and (c). A buyer would not qualify if a plan at the time of sale calls for a later transfer to an unrelated person who is not a qualified farmer.

Periods when maintained land is out of production, such as under a government program or for fallowing, would not count against the seller. Farm use of land given up in a like-kind exchange, or a decedent's farm use of inherited land, may also count.

Implications for Landowners, Pass-Through Entities, Trusts and Estates

For partnerships and S corporations, each partner or shareholder makes the election, not the entity. The entity would file Schedule A (Form 1062) and give owners copies of the schedule and the covenant, or its owners could not make the election.

Certain events make all remaining installments due at once. These include an assessed addition to tax for a late installment and the death of an individual seller, in which case the balance is due on the original due date of the return for the year of death.

For a non-grantor trust or a decedent's estate, a liquidation or a sale of substantially all its assets accelerates the balance. A trust or estate and its beneficiaries are separate taxpayers, so a beneficiary's death does not accelerate the trust's or estate's installments.

A C corporation, trust, or estate may avoid acceleration on a sale of substantially all its assets if an eligible transferee assumes the remaining payments on Form 1062-T, generally due within 30 days.

Comment Deadline and Proposed Applicability Date

Comments may be submitted at regulations.gov under REG-117095-25 or by mail. A public hearing will be scheduled only if a person who timely submits comments asks for one in writing.

As proposed, the final rules would apply to qualified sales or exchanges in taxable years ending after the final regulations are published. Until then, taxpayers may rely on the proposed rules for qualified sales in taxable years beginning after July 4, 2025, if they follow the rules in their entirety and consistently.

This post is for informational purposes only and does not constitute legal advice or create an attorney-client relationship. Always consult a licensed attorney in your jurisdiction for advice tailored to your circumstances.