IRS proposes four-year installment election for farmland gain tax

The Internal Revenue Service has issued a notice of proposed rulemaking (FR Doc No. 2026-19888) to add regulations to 26 CFR part 1 that implement the statutory election under IRC §1062. The election permits a taxpayer who sells or exchanges qualified farmland property to a qualified farmer to defer the tax on the gain and pay it in four equal annual installments. The provision applies to qualified sales or exchanges occurring in taxable years beginning after July 4, 2025, the enactment date of the One, Big, Beautiful Bill Act.

Qualified farmland property is defined as real property in the United States that the taxpayer used as a farm or leased to a qualified farmer for substantially all of the ten-year period preceding the sale, and that is subject to a covenant restricting non-farm use for ten years after the sale. A qualified farmer is any individual actively engaged in farming under 7 U.S.C. 1308-1(b) and (c). The election must be made no later than the due date of the return for the taxable year of the sale, and for partnerships or S corporations the election is made at the partner or shareholder level.

The first installment is due on the due date (without extensions) of the return for the year of the sale; each subsequent installment is due on the due date of the following year's return. The regulations provide acceleration rules - unpaid installments become due upon a tax addition for late payment, the death of an individual taxpayer, or a liquidation, asset sale, bankruptcy, or business cessation of a C corporation, trust, or estate. A proration rule requires any deficiency assessed against the applicable net tax liability to be allocated among the installments, with amounts due at the time each installment is payable, except where the deficiency stems from negligence, intentional disregard, or fraud.

Comments on the proposed regulations must be submitted electronically via https://www.regulations.gov (docket REG-117095-25) or in paper form to the IRS address listed in the notice. Written or electronic comments and requests for a public hearing are due by November 30, 2026. For technical questions, contact Nathan Cox, Office of Associate Chief Counsel (Income Tax & Accounting), at (202) 317-7006.