Proposed regulations issued by the IRS explain how sellers of certain farmland can elect to pay the resulting tax in installments rather than all at once. This guidance describes how to make the election under IRC § 1062, which applies to qualified sales or exchanges in tax years beginning after July 4, 2025. (Preamble to Prop Reg REG-117095-25; IR 2026-115, 9/28/2026)
New installment election for farmland sales
These are the first proposed rules under § 1062, which was enacted as part of the One Big Beautiful Bill Act, P.L. 119-21. Under the provision, eligible taxpayers can spread the tax attributable to gain from qualifying farmland sales over four years.
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. That first installment is generally due on the regular due date of the taxpayer’s federal income tax return, without regard to extensions, for the year of the sale, and each later installment is due on that same date in the following years.
Taxpayers must make the election by the return due date, including extensions. Once made, the election can be revoked only by paying the full remaining unpaid liability.
Defining qualifying sellers, buyers, and property
Several conditions must be met for a transaction to qualify. 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. It 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.
Buyers must be qualified farmers, defined as individuals actively engaged in farming. A copy of the covenant must be attached to the return for the year of the sale.
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. Prior use by a decedent, or under certain like-kind exchanges, can also count.
Pass-through entities and payment acceleration
Sales by pass-through entities receive specific treatment. 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. For a consolidated group, the group’s agent makes the election on the group’s behalf. An entity can also make the election for a tax liability it owes at the entity level, such as an S corporation subject to the built-in gains tax under IRC § 1374.
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.
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.
Comments requested
The IRS requests comments on all aspects of the proposed regulations. Until final rules are published, taxpayers can rely on the proposed regulations for qualifying sales in tax years beginning after July 4, 2025. Comments are due by November 30, 2026, and should be submitted through the Federal eRulemaking Portal as directed in the proposal.
A public hearing will be scheduled if a person who timely submits comments requests one in writing.
For more on the installment payment election under § 1062, see Checkpoint’s Federal Tax Coordinator 2d ¶ N-1600.
Take your tax and accounting research to the next level with Checkpoint Edge and CoCounsel. Get instant access to AI-assisted research, expert-approved answers, and cutting-edge tools like Advisory Maps and State Charts. Try it today and transform the way you work! Subscribe now and discover a smarter way to find answers.
