A New IRS Rule Lets Farmland Sellers Defer Most of Their Tax Bill — But Only If They Sell to a Working Farmer

A seller of qualifying farmland to a qualifying working farmer can file Form 1062 with the federal return for the year of sale and elect to pay the net income tax attributable to the gain in four equal annual installments. The first quarter is due with that return; the other three quarters are due with the next three annual returns. The IRS instructions state that interest is not charged on those deferred installments.

The seller can still receive 100% of the sale proceeds at closing. The buyer does not have to pay over time, and the deed transfer does not become an installment transaction simply because the seller makes the Section 1062 election. This is a timing rule for paying the seller’s federal tax liability, not a change to the closing mechanics.

The restrictions are the central part of the law. Qualified farmland property generally must be U.S. real property that the seller used as a farm for farming purposes — or leased to a qualified farmer for that purpose — during substantially all of the 10-year period ending on the sale date.

The buyer must be an individual actively engaged in farming. The property must also be covered by a covenant or other legally enforceable restriction prohibiting nonfarm use until 10 years after the sale. That forward restriction follows the land rather than merely expressing the buyer’s present intent. The design favors transfers to working farmers, not sales where agricultural use may quickly give way to development or passive investment.

A landowner selling to a land-buying company, developer, solar or timber investor, or another buyer who is not a qualified farmer committing to the 10-year farming-use restriction cannot use Section 1062 for that transaction. The sale remains subject to ordinary tax rules, unless another provision applies.

A standard Section 1031 exchange remains a separate option. It does not require the buyer to farm the property, but it does require the seller to reinvest through a qualifying exchange into like-kind real property. For someone comparing a sale to a neighboring farmer with a faster cash offer, Section 1062 adds one more variable to review with an accountant; it does not make either path automatically better.

Agricultural tax attorneys reviewing the provision have described the interest-free deferral, paired with Notice 2026-3’s estimated-tax penalty relief, as a meaningful cash-flow benefit for sellers of low-basis land to farmers, according to trade-press coverage of the guidance. The benefit is timing, however, not forgiveness: all four installments remain due, and an acceleration event can bring unpaid amounts forward.

IRS guidance on Section 1062 remains relatively new. Form 1062 and its instructions were finalized only in December 2025, and the transactions occurring now will feed into returns filed for the 2026 tax year. Farm-policy and tax-law observers therefore expect the coming filing season to provide the first meaningful look at how often sellers and buyers structure deals around the election.

No public IRS utilization data is available as of this writing. Until reporting catches up, claims about the number or dollar value of Section 1062 elections would be speculation.