Twenty-five percent, four times. That is how the IRS says a seller of qualifying farmland could pay the tax on the gain, if the buyer is a farmer and the proposed rules become final. Treasury and the IRS released the proposal on Sept. 28, and comments are due Nov. 30.
The rules are proposed, not in effect as written. They carry out a provision of the tax code that lets farmland sellers spread out the bill. The election would apply to sales in tax years that began after July 4, 2025.
Four payments of 25 percent
The IRS announced the proposal in release IR-2026-115. Taxpayers who make the election would pay 25% of the applicable tax liability in each of four annual installments. The first payment would generally be due on the regular due date of the return for the year of sale, without extensions.
The next three would each be due on the regular return due date for the following years. The proposed regulation, published Sept. 29 as Federal Register document 2026-19888, calls the amount owed the “applicable net tax liability.” It spells out that each installment is 25% of that figure.
IRS Chief Executive Officer Frank J. Bisignano said in the release that “farmers should have practical options when farmland is sold.” The release adds that the election helps keep farmland in agricultural use. Neither the release nor the proposal text describes a separate interest charge on the installments.
Which land and which buyers count
The property has to be real property in the United States that the seller used for farming, or leased to a qualified farmer for farming, during substantially all of the 10 years before the sale. A legally enforceable restriction must generally keep the land in farming for 10 years after the sale.
The buyer has to be an individual actively engaged in farming. The proposal ties that test to a federal farm statute, 7 U.S.C. 1308-1. A sale does not qualify if a plan already in place would transfer the land to an unrelated non-farmer. The covenant has to be attached to the seller’s tax return for the year.
That leaves the question every landowner with a possible sale asks: how would the rule change the tax on a sale to a neighboring farmer? The proposal changes the timing, not the rate. The gain is the same, and the bill is paid over four returns instead of one, provided the land, the buyer and the covenant all qualify.
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The proposal also describes ways to meet the 10-year test when land sat idle for a good reason. Examples include land temporarily out of production under a government program, as part of recognized farming practices, or because of events outside the owner’s control.
How owners and entities elect
Individuals file Form 1062 and Schedule A to the form with their return. The form is titled “Deferral of Tax on Gain from the Sale or Exchange of Qualified Farmland Property to Qualified Farmers,” according to the proposal. Once made, the election can be revoked only by paying the full remaining unpaid liability.
For partnerships and S corporations, the release says partners and shareholders generally make their own elections for their share of the gain. Similar rules apply to gain passed through a trust or estate to a beneficiary.
The IRS estimated in the proposal that approximately 1.9 million small entities may qualify to make the election, though it expects fewer to be affected. It put the number of respondents who would file the new forms at 1,030.
When the payments could speed up
The proposal lists events that would accelerate the unpaid balance. When an individual who made the election dies, the death is an acceleration event, and the remaining tax is due by the return due date for the year of death, without extensions.
A late payment can also trigger it. An addition to tax for a missed installment accelerates the remaining balance. For trusts, estates and C corporations, a sale of substantially all the assets accelerates payment unless a qualifying buyer assumes the obligation under a transfer agreement.
Deficiencies found later are generally spread across the remaining installments. If the IRS finds negligence, the whole deficiency, with any interest and penalties, must be paid on notice and demand.
Relying on the proposal before it is final
Taxpayers may rely on the proposed rules for sales in tax years beginning after July 4, 2025, and ending on or before the date the final regulations are published, if they follow the rules consistently, the Federal Register text says. The proposal’s applicability date points to sales in tax years ending after final publication.
Written or electronic comments and requests for a public hearing must be received by Nov. 30. A hearing will be scheduled only if someone asks for one in writing. Questions about the rules go to Nathan Cox in the IRS Office of Associate Chief Counsel at 202-317-7006.
For a landowner weighing an offer, the open question is whether a final rule will look like this one. The Nov. 30 comment deadline is the last scheduled chance to shape it. A sale that closes before the rules are final has to rest on the proposal as published.
Selling farmland to a farmer before year-end?
A land sale can push one year’s income far above normal, and the first of the four payments is due with that year’s return, with no extension. Retirees who sell without planning for the income spike can face a large first payment and a higher Medicare surcharge in the same stretch.
The Retirement Tax & Withdrawal Planner includes four calculators (provisional income, IRMAA tier, RMD schedule and Roth bracket fill) and a chapter on the IRMAA Medicare surcharge. Together they show how a big income year lands on Social Security taxes and Medicare premiums, which is the part a sale price does not show.
See how a big income year hits IRMAA with the Retirement Tax & Withdrawal Planner →
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This article was produced with the assistance of AI and reviewed by the editorial team.
David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
