The Department of the Treasury and the Internal Revenue Service issued proposed regulations on Sept. 28, 2026, for taxpayers who sell or exchange qualifying farmland to qualified farmers and elect to pay the tax on the gain in four equal annual installments.
Section 1062 of the Internal Revenue Code allows eligible taxpayers to spread payment of the tax attributable to gain from certain farmland sales or exchanges over four years. The election applies to qualified sales or exchanges made in taxable years beginning after July 4, 2025.
"Farmers should have practical options when farmland is sold," said IRS Chief Executive Officer Frank J. Bisignano. "The Working Families Tax Cuts helps keep farmland in agricultural use by allowing eligible sellers to spread their tax payments over four years when qualifying property is sold to active farmers."
To qualify, the farmland must be real property located in the United States that was generally used by the taxpayer for farming purposes, or leased to a qualified farmer for farming purposes, during substantially all of the 10 years before the sale or exchange. The property must also be subject to a legally enforceable restriction that generally prevents it from being used for anything other than farming for 10 years after the sale or exchange. The buyer must be an individual actively engaged in farming.
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. Each remaining payment would generally be due on the regular return due date for the following taxable year.
The proposed rules also address sales or exchanges by partnerships, S corporations, trusts and estates. In a sale by a partnership or S corporation, partners and shareholders generally would make their own elections on their share of the gain. Similar rules would apply when gain passes through a trust or estate to a beneficiary.
The regulations also explain how taxpayers may satisfy the prior 10-year farming-use requirement in certain circumstances, including when farmland is temporarily taken out of production under a government program, as part of recognized farming practices or because of events outside the taxpayer's control.
Treasury and the IRS request comments on the proposed regulations. Written or electronic comments must be received by Nov. 30, 2026, in accordance with the instructions in the proposed regulations.