IRC §1062 and Farmland Sales: What Ag Tax Practitioners Should Know

The One Big Beautiful Bill Act (OBBBA) created a new provision—IRC §1062—that may significantly reshape tax planning for farmland sales. For tax years beginning after July 4, 2025, taxpayers who recognize gain from the sale or exchange of qualified farmland property may elect to pay the additional income tax attributable to that gain in four equal annual installments, rather than in a single payment for the year of sale.

This relief is aimed squarely at agricultural taxpayers. Farmers and landowners often reinvest sale proceeds or use them to retire debt, leaving little liquidity for a large, one‑time tax bill. By allowing the tax specifically attributable to the gain to be spread over four years, §1062 can ease the financial burden and support smoother transitions of farmland within families and to new farmers.

Determining the Applicable Net Tax Liability

Only the incremental tax attributable to the farmland gain is eligible for installment payment. To calculate this applicable net tax liability, the taxpayer (or the practitioner) must compute:

• The income tax with the gain included;
• The income tax without the gain; and

• The difference, which is the amount payable in four equal installments.

Requirements for Making the Election

To qualify for this election, taxpayers must comply with several conditions. Two primary requirements are discussed next.

1. Ten‑Year Qualified Agricultural Use 
   The property must remain in qualified agricultural use—as defined by IRC §2032A(e)—for at least 10 years following the sale. This requirement can be met through soil cultivation, crop production, livestock production, horticultural activities, or a combination of these. This covenant or restriction must be legally enforceable. Although the new Code section does not explicitly require it, some states may require recording the covenant. Practitioners should confirm that clients obtain proper documentation at the time of sale, because compliance failures may trigger accelerated tax.
2. Sale to a Qualified Farmer
   The buyer must be a qualified farmer, meaning an individual who is actively engaged in farming operations. This requirement includes those taxpayers who:

• • Materially participate in farming activities,
  • Have made substantial investments of capital, equipment, or land, or
  • Actively manage farm personnel or operations.

When §1062 uses the term “qualified farmer,” it defines this individual as someone “actively engaged in farming.” It cross-references the Food Security Act of 1985 for the meaning of this phrase.

Underpayments and Deficiencies

If the IRS later assesses a deficiency not resulting from intentional disregard, the additional tax is generally prorated across all installments. Any portion attributable to installments whose due dates have already passed becomes immediately payable, while the remainder is folded into future payments.

If the deficiency arises from intentional disregard, however, all remaining installments become immediately due. This distinction underscores the importance of accurate reporting and good documentation.

Passthrough Entities: A Key Administration Issue

For partnerships and S corporations, the installment election under §1062 is made at the partner or shareholder level, not by the entity. However, the entity must still supply each owner with the information needed to compute their share of the gain and the related applicable net tax liability. Practitioners should ensure owners receive complete and timely statements so they can make a valid election.

Making the Election

The election must be made on a timely filed return—without regard to extensions—for the year of sale. Missing the original filing deadline means losing the benefit. The remaining three annual payments must be made by the due dates of the corresponding tax returns.

How Ag Tax Clients Can Benefit from the March 1 Deadline

Although §1062 introduces a new long-term planning tool for farmland sales, agricultural clients also benefit from a long-standing annual timing rule unrelated to §1062: the special March 1 filing deadline for farmers and fishermen.

Why the March Deadline Matters

Many taxpayers who failed to make their January 15, 2026, estimated tax payment can avoid penalties if they filed their 2025 return and paid the full tax by January 31, 2026. For most non-farm individuals, this window is narrow and risky, since many Forms W‑2, 1099, and other information returns arrive in early February.

Farmers, however, have an additional opportunity.

Special Rule for Farmers

A taxpayer qualifies for this exception if at least two‑thirds (66⅔%) of total gross income for the year comes from farming or fishing. For those who qualify and file a Form 1040:

• No estimated tax payments are required for the 2025 tax year if the taxpayer files and pays in full by March 1, 2026.
• Because March 1, 2026, falls on a Sunday, the effective deadline becomes Monday, March 2, 2026.

This rule allows qualifying agricultural taxpayers to sidestep the entire estimated tax regime for the prior year—a helpful cash‑flow management opportunity.

By John W. Richmann, EA, MBA
Tax Materials Specialist, U of I Tax School

Sources:

• One Big Beautiful Bill Act, PL 119‑21 §70437, creating IRC §1062 | U.S. House of Representatives
• IRC §§2032A(e), 6654(h), 6654(i) | U.S. House of Representatives
• Food Security Act of 1985, PL 99-198, creating 7 USC §1308‑1(b), (c) | U.S. House of Representatives
• Chapter 11: Agricultural Issues and Rural Investments, p. 576 | 2025 University of Illinois Federal Tax Workbook