Tax changes proposed by the Treasury Department and the Internal Revenue Service could give eligible farmland sellers more time to pay the federal income tax connected to a qualifying sale.
The proposed regulations would explain how taxpayers can use a provision of the Internal Revenue Code to divide the applicable tax liability into four equal annual payments.
These tax changes focus on the timing of the obligation rather than reducing the amount owed.
The proposal applies to certain sales or exchanges of farmland to qualified farmers and is intended to address the cash-flow burden that can arise when a property owner realizes a large taxable gain from selling agricultural land.
The IRS announced the proposed regulations on September 28, 2026.
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What the proposed farmland tax changes would do
Under Section 1062 of the Internal Revenue Code, an eligible taxpayer may elect to pay the tax attributable to gain from a qualifying farmland sale or exchange in four equal installments.
These tax changes would create a payment option for qualifying transactions.
The election does not eliminate the tax on the gain.
Instead, it changes the timing of the payments by allowing the seller to spread the applicable net income tax liability over four years.
Tax Changes of this type may be particularly important for sellers who receive proceeds from a property transaction but do not want the entire related federal tax obligation to come due with the return for the year of sale.
The rule generally covers qualified sales or exchanges made in taxable years beginning after July 4, 2025.
Because the regulations are proposed rather than final, taxpayers should not assume that every provision will remain unchanged after the public comment process.
How the tax changes would structure four annual payments
A taxpayer making a valid election would generally pay 25% of the applicable tax liability in each of four annual installments.
The first payment would generally be due on the regular federal income tax return due date for the taxable year in which the sale or exchange occurs.
The due date would be determined without regard to an extension of time to file the return.
Each later installment would generally be due on the regular return due date for the following taxable year.
For example, a seller with a qualifying transaction in a taxable year beginning after July 4, 2025, would generally make the first payment with the return for the sale year and the remaining payments with returns for the next three taxable years.
The proposal concerns the tax attributable to the qualifying gain rather than the full amount of sale proceeds.
The applicable net tax liability is generally based on the difference between the taxpayer’s net income tax for the year and the tax that would have applied without the gain from the qualifying farmland transaction.
Which farmland sales may qualify under the tax changes
The proposed rules would apply only when the property and the buyer meet specific requirements.
The farmland generally must be real property located in the United States.
During substantially all of the 10-year period before the sale or exchange, the property generally must have been used by the taxpayer for farming purposes or leased to a qualified farmer for farming purposes.
The property also must be subject to a legally enforceable restriction that generally prevents it from being used for purposes other than farming for 10 years after the sale or exchange.
The buyer must generally be an individual who is actively engaged in farming.
These requirements mean the proposed election would not automatically apply to every sale of rural land, agricultural acreage or property historically used as a farm.
Sellers would need to document the property’s prior use, the buyer’s qualifications and the post-sale restriction before relying on the election.
Special rules for partnerships, S corporations and trusts
The proposed regulations would also address transactions involving pass-through entities and fiduciary arrangements.
When a partnership sells qualifying farmland, the partners generally would make their own elections for their respective shares of the gain.
Similar treatment would generally apply to shareholders of an S corporation that sells qualifying property.
When gain passes through a trust or estate to a beneficiary, the proposed rules would provide corresponding guidance for determining how the election applies.
These provisions could make the election more complicated because the seller, entity and individual owners may each have reporting responsibilities.
Tax Changes involving pass-through income often require coordination between the entity’s return and the owners’ individual tax returns.
How the tax changes address the 10-year farming requirement
The proposed regulations would explain how taxpayers may satisfy the prior 10-year farming-use requirement in certain unusual circumstances.
Those circumstances may include periods when farmland was temporarily removed from production under a government program.
They may also include temporary interruptions connected to recognized farming practices or events outside the taxpayer’s control.
The guidance is intended to clarify that a temporary interruption does not necessarily disqualify property that otherwise meets the long-term farming-use requirement.
The specific facts of each transaction would still matter.
A temporary pause in production would not by itself guarantee that a property qualifies for the election.
Public comments are due November 30, 2026
Treasury and the IRS are accepting written or electronic comments on the proposed regulations.
Comments must be received by November 30, 2026.
The comment period gives farmers, landowners, tax professionals, agricultural organizations and other interested parties an opportunity to raise questions about the proposed definitions and procedures.
Comments may also address how the tax changes should apply to entities, beneficiaries, temporary changes in land use and documentation of the required farming restriction.
The agencies may revise the regulations after reviewing the comments.
Until final rules or other applicable guidance are issued, taxpayers should review the current IRS instructions and consult a qualified tax professional about whether an election is available for a particular transaction.
What farmland sellers should review under the tax changes
Owners considering a farmland sale should begin by identifying the taxable year in which the transaction would occur.
They should then review whether the property was used for farming or leased for farming during substantially all of the preceding 10 years.
They should also examine the purchase agreement and any conservation, agricultural-use or development restriction that would remain in force after closing.
The buyer’s status is another key issue because the proposed election generally requires an individual who is actively engaged in farming.
Sellers should preserve leases, operating records, farm-use documentation and transaction documents that may support the election.
They should also estimate the applicable net tax liability rather than assuming that one-fourth of the total gain or one-fourth of the sale price will equal each payment.
Other tax issues may apply to a farm sale, including depreciation recapture, the classification of different assets sold under one agreement and the treatment of installment-sale income.
The Section 1062 election is therefore separate from the general installment method that may apply when a seller receives payments after the year of sale.
Why the proposed tax changes matter
Tax Changes affecting farmland transactions can influence the timing of a sale, the structure of a purchase agreement and the amount of cash a seller must reserve for federal taxes.
The proposed four-payment election could reduce the immediate payment pressure for some eligible sellers while preserving the government’s ability to collect the full applicable tax.
It may also support transfers to active farmers when a seller wants the land to remain in agricultural use.
However, the election would be limited to transactions meeting the statutory and regulatory requirements.
It would not provide a general four-year payment schedule for all real estate sales or all farm-related transactions.
Taxpayers should wait for final guidance and obtain transaction-specific advice before making an election or structuring a sale around the proposed rules.
Frequently Asked Questions
What are the new farmland Tax Changes proposed by the IRS?
The proposed regulations would explain how eligible taxpayers can elect to pay the federal tax attributable to gain from certain qualifying farmland sales in four equal annual installments.
When would the farmland installment election apply?
The election applies to qualifying sales or exchanges made in taxable years beginning after July 4, 2025, subject to the statutory requirements and final guidance.
Who may qualify for the four-payment farmland tax election?
Generally, the seller must dispose of qualifying U.S. farmland that met the required farming-use test, the property must carry a legally enforceable farming restriction after the sale, and the buyer must be an individual actively engaged in farming.
Are the proposed farmland rules final?
No. Treasury and the IRS issued proposed regulations and requested public comments. Comments are due November 30, 2026.
Does the election eliminate tax on the farmland sale?
No. It generally spreads the applicable net income tax liability into four equal annual installments rather than eliminating or reducing the underlying tax.
Fact-Checked: Key details were checked against the IRS farmland tax guidance in Publication 225 and Internal Revenue Bulletin 2026-02, in addition to the September 28, 2026 IRS announcement.
Disclaimer: These proposed rules may change before finalization. Farmland sellers should consult a qualified tax professional about their specific transaction.
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