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Understanding Section 1062 in a Farmland Sale

by | Apr 4, 2026 | Wingert Insights

Understanding Section 1062 in a Farmland Sale
As landowners think through a possible farmland sale, tax implications are often part of the overall decision. One newer federal provision worth understanding is Section 1062. In some qualifying farmland sales, it allows the seller to pay the federal income tax tied to the gain in four equal annual installments instead of paying it all in the year of sale. For calendar-year taxpayers, 2026 is generally the first year this election is available.

What it does

The key point is that Section 1062 does not reduce the tax owed. It does not lower the gain, lower the tax rate, or make the tax go away. What it may do is spread out the payment of the tax tied to that gain over four years. For some landowners, that may help with timing and cash flow.

When it may apply

This provision is narrower than it may first sound. The property must be U.S. real estate that was used by the seller as a farm for farming purposes, or leased by the seller to a qualified farmer for farming purposes, during substantially all of the 10-year period up to the date of sale. The buyer must also be a qualified farmer, which the law defines as an individual actively engaged in farming.

One requirement that stands out

To qualify, the land must also be subject to a written covenant or legally enforceable restriction requiring it to remain in farming use for 10 years after the sale. This means Section 1062 is not simply a tax election made after closing. If the parties want this option to be available, the transaction needs to be set up properly and that restriction needs to be part of the sale. The IRS guidance also says a copy of that covenant must be included with the tax return.

How the payment timing works

If the election is made, the tax is paid in four equal installments. The first installment is still due by the original due date of the return for the year of sale, without regard to extensions, and the remaining three installments are paid with the next three annual returns.

The bottom line

Section 1062 may create a useful planning option in the right situation, especially when farmland is being sold to an active farmer and the transaction can be structured to meet the required 10-year farming-use restriction. But it is not automatic, and it will not fit every sale. This is something landowners should talk through with their tax advisor and attorney early in the process, while the sale is still being planned.

This article is for general educational purposes only and is not intended as legal or tax advice.

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