- You may be able to pay the federal income tax on a farmland sale in four equal annual installments instead of all at once.
- To qualify, you must sell to an individual actively engaged in farming, and the land must carry a recorded covenant limiting it to farming for 10 years.
How Can Farmland Sellers Spread Their Tax Bill Over Four Years?
If you have owned farmland for years, selling it can bring a large tax bill, all due at once. Section 1062, enacted as part of the One Big Beautiful Bill Act, eases that burden. When you sell qualified farmland to a qualified farmer, you can choose to pay the applicable federal income tax attributable to the gain in four equal annual installments instead of all in the year of sale. This provision applies to sales in tax years beginning after July 4, 2025.
On September 29, 2026, the IRS and the U.S. Department of the Treasury published proposed regulations explaining how the election works. Until the rules are final, you can rely on the proposed regulations if you follow them completely and consistently.
The election can help if, for substantially all 10 years leading up to the sale, you have farmed the land or leased it to a qualified farmer. It is available whether you own the land directly or through a business, trust, or estate. There are two key requirements: the buyer must be an individual actively engaged in farming, and the land must be subject to a recorded covenant or similar restriction limiting it to farming use for 10 years after the sale.
What Do the Farmland Installment Rules Require?
Which Land Qualifies?
Your land must be real property in the U.S. that you farmed, or leased to a qualified farmer for farming, for substantially all 10 years leading up to the sale. Time out of production can still count if you kept the land ready for farming. That includes time the land was idled under a government program, rested under recognized good farming practices such as leaving it fallow, or taken out of use by events outside your control, such as natural disasters.
What if you have not owned the land for 10 years? If you acquired it in a like-kind exchange, by inheritance, or in certain other transfers where the prior owner’s holding period carries over, earlier farming history can count toward the 10 years. Certain residential buildings on the property can count as farm property, too. And if only part of your property is farmed, or only part is covered by the covenant, only that part qualifies.
Who Can Buy?
Your buyer must be an individual actively engaged in farming. A buyer who purchases through an LLC that is disregarded for tax purposes still qualifies. However, the sale will not qualify if, at the time of sale, there is a plan to transfer the land to someone who is neither related to the buyer nor a qualified farmer.
What Must the Covenant Include?
The covenant, or a similar restriction such as an easement, must limit the land to farming use for 10 years after the sale and bind the buyer and all future owners. It must be signed before or at closing and recorded in the local land records office by the time the deed is filed. You must also attach a copy to the tax return for the year of sale. If you do not, the property may not qualify.
How Much Tax Is Deferred?
Only the increase in your applicable federal income tax caused by the sale, after certain credits, can be paid in installments. In other words, it is the difference between your tax with the gain and your tax without it. Each installment is 25% of that amount. Only gain recognized in the year of sale counts; therefore, gain from an installment sale reported in later years does not count.
When Are Payments Due?
The election is made by filing Form 1062 and Schedule A with your return for the year of sale, filed by its due date, including extensions. Your first installment is due on the original due date of the return, without extensions. The remaining three installments are due on the original due date of the next three years’ returns, also without extensions.
Insight from Forvis Mazars: Because extensions do not apply to payments, the first installment can be due before you file the election. For example, if you are a calendar-year individual, you owe the first payment by April 15 even if you extend your return to October 15.
Is the Farmland Installment Election Right for You?
The main advantage is cash flow. Instead of paying the full tax in the year of sale, you pay 25% a year over four years.
The trade-off is the 10-year covenant, limiting who can buy your land and how it can be used after the sale. The election is also hard to undo, since revoking it means paying the remaining balance. Certain events, such as a missed payment or the death of the individual taxpayer, can accelerate the payment of the remaining balance.
Our recommendation is to start planning before you are ready to sell. Confirm a potential buyer qualifies, and have the covenant drafted and ready to execute at closing.
How Forvis Mazars Can Help
The farmland installment election can ease the tax burden of a sale, but only if the details are handled correctly before and after closing. Our professionals can help you evaluate eligibility, coordinate the covenant with your attorneys, estimate your potential tax benefit, and help you complete the required filings. Contact a professional at Forvis Mazars to discuss whether this election fits your plans.
Forvis Mazars Private Client services may include investment advisory services provided by Forvis Mazars Wealth Advisors, LLC, an SEC-registered investment adviser, and/or accounting, tax, and related solutions provided by Forvis Mazars, LLP. The information contained herein should not be considered investment advice to you, nor an offer to buy or sell any securities or financial instruments. The services, or investment strategies mentioned herein, may not be available to, or suitable, for you. Consult a financial advisor or tax professional before implementing any investment, tax or other strategy mentioned herein. The information herein is believed to be accurate as of the time it is presented and it may become inaccurate or outdated with the passage of time. Past performance does not guarantee future performance. All investments may lose money.