Selling Farm Property? New IRS Proposed Rules Let You Split the Tax Bill Into Four Annual Payments

On September 28, 2026, the Treasury Department and the IRS issued proposed regulations (IR-2026-115, NPRM REG-117095-25) that explain exactly how eligible farmland sellers can spread their federal tax bill over four years instead of writing one large check the year they sell. If you are thinking about selling farmland, or already have a sale in progress, this new rule could change your cash-flow picture significantly. Here is what you need to know.

Where This Rule Comes From

The election comes from Section 1062 of the Internal Revenue Code, a provision added by the 2025 tax law, Public Law 119-21, signed on July 4, 2025. That law is commonly known as the One Big Beautiful Bill Act. The guidance in IR-2026-115 applies to qualified sales or exchanges in tax years beginning after July 4, 2025.

Until final regulations are issued, taxpayers may rely on the proposed rules for qualifying sales in years beginning after July 4, 2025. Written comments are due November 30, 2026. So while the rules are not yet final, you can act on them now, and the comment deadline gives you a clear window to follow this process.

What the Election Actually Does

Section 1062 of the Internal Revenue Code allows eligible taxpayers to spread payment of the tax attributable to gain from certain sales or exchanges of farmland over four years. This is not a reduction in the tax you owe. The total bill stays the same. What changes is when you pay it.

A taxpayer who makes the election pays 25% of the applicable net tax liability, the additional tax the gain generates, in each of four equal annual installments. Taxpayers making the election would pay 25% of the applicable tax liability with each of four annual installment payments. The first payment would generally be due on the regular due date of the taxpayer’s federal income tax return, without regard to extensions, for the year of the sale or exchange. The three remaining payments follow on the same due date in each of the next three years.

One important planning note: taxpayers must make the election by the return due date, including extensions. But even if you file on extension, the first 25% payment is still due on the original deadline, not the extended one. Do not confuse filing deadline flexibility with payment deadline flexibility.

The new provision allows the seller to receive full cash payment at closing while still spreading the tax liability over four years. That is a meaningful distinction from a traditional installment sale, where the buyer pays you in pieces and you report income as you receive it. Here, you can collect the full sale price up front and still defer portions of the tax.

Does Your Property Qualify?

Not every farm sale qualifies. The rules set out three conditions the property itself must meet.

Ten years of farming use before the sale

Qualifying property must be real property located in the United States that the taxpayer used for farming, or leased to a qualified farmer, for substantially all of the 10-year period before the sale. If you took the land out of production for a stretch, that may not automatically disqualify you. Temporary interruptions in farming will not necessarily break the 10-year use requirement, as long as the taxpayer keeps performing the functions needed to maintain the land for farming. That includes land idled under a government program, land left fallow under recognized farming practices, and land taken out of production because of events outside the taxpayer’s control.

A legally enforceable farming covenant after the sale

The property must also be subject to a legally enforceable restriction, called a section 1062 covenant, that bars any use other than farming for at least 10 years after the sale. This covenant has to be attached to your tax return for the year of the sale. If the covenant covers only part of a property, only that restricted portion counts toward the installment option.

The buyer must be a qualified farmer

Buyers must be qualified farmers, defined as individuals actively engaged in farming. A buyer also fails the test if, under a plan that exists at the time of the sale, the property is headed to someone who is neither a related person nor a qualified farmer. In plain terms, the IRS is looking at who ultimately ends up working the land, not just who signs the closing documents.

How to Make the Election

A seller makes the election by filing Form 1062 and Schedule A of Form 1062 with the return for the sale year, no later than that return’s due date. The IRS published Form 1062 and Schedule A (Form 1062) in December 2025 so electing taxpayers can report the qualified sale and compute the applicable net tax liability.

If the farmland is owned through a partnership or S corporation, the process is slightly different. When a partnership or an S corporation sells qualifying farmland, each partner or shareholder makes the election separately for their share of the gain, and the same approach applies when a trust or estate passes gain through to a beneficiary.

Watch Out for Acceleration Events

Once you are in the installment plan, certain events can wipe out the remaining schedule and make the entire unpaid balance due immediately. Several events accelerate the schedule and make the unpaid tax due at once. For any taxpayer, failing to pay an installment on time triggers acceleration. For an individual, death is an acceleration event. For a C corporation, trust, or estate, a liquidation or a sale of substantially all assets can trigger acceleration, as can a cessation of business for a C corporation.

There is a potential way out of acceleration in some cases. Acceleration can be avoided if the buyer of those assets is an eligible transferee that agrees to take on the remaining payments under a transfer agreement filed with the IRS. This is a technical area, and getting it right matters. Missing one installment payment does not just cost you a penalty. It can make your entire remaining tax bill due the same day.

What This Means if You Already Have Tax Debt or Filing Problems

If you are selling farmland and you also have unresolved IRS issues, whether that is back taxes, unfiled returns, or an existing collection action, the stakes of this election go up considerably. An acceleration event in the middle of an unresolved tax situation could add a significant new balance to an already difficult picture.

Equally, if a large farmland sale is going to generate a gain you cannot easily pay in full right now, the Section 1062 election may be one part of a broader strategy to manage what you owe and when. But the election does not stand alone. It interacts with your overall tax picture, your state tax obligations (some states follow federal treatment, others do not), and any existing IRS collection activity against you.

The proposed regulations are detailed and the qualification rules are strict. Whether a specific sale qualifies, whether the election is worth making, and how it fits alongside any existing tax debt depends entirely on your individual circumstances. A tax professional who understands both the new rules and IRS resolution options can help you look at the full picture.

At Clear Start Tax, we work with individuals and business owners who are facing complex IRS situations, including those navigating large tax events like property sales on top of existing debt. If you are selling farmland and want to understand how this new election could affect your tax situation, or if you have existing IRS issues that could be complicated by a sale, we are here to help. Reach out for a free consultation to talk through your options.