WASHINGTON, D.C. — The Treasury Department and Internal Revenue Service have proposed rules allowing eligible taxpayers who sell qualifying U.S. farmland to active farmers to spread the federal tax attributable to the gain over four annual payments, a change aimed at reducing the immediate tax burden on certain agricultural land transfers.
The proposal implements Section 1062 of the Internal Revenue Code and would apply to qualifying sales or exchanges made in taxable years beginning after July 4, 2025.
Under the proposed rules, taxpayers making the election would generally pay 25% of the applicable tax liability with each of four annual installments. The first payment would be due with the federal income tax return for the year of the sale or exchange, without regard to extensions, with the remaining installments due on the regular return dates for the following three taxable years.
To qualify, the property must be U.S. real estate that was generally used by the taxpayer for farming, or leased to a qualified farmer for farming, during substantially all of the 10 years before the transaction.
The property must also be subject to a legally enforceable restriction generally preventing non-farming use for 10 years after the sale or exchange. The buyer must be an individual actively engaged in farming.
“Farmers should have practical options when farmland is sold,” IRS Chief Executive Officer Frank J. Bisignano said. “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.”
The proposed regulations also address transactions involving partnerships, S corporations, trusts and estates.
For sales by partnerships or S corporations, partners and shareholders generally would make individual elections for their respective shares of the gain. Similar treatment would apply when gain passes through a trust or estate to a beneficiary.
Treasury and the IRS also proposed rules for satisfying the prior 10-year farming-use requirement when land is temporarily taken out of production because of a government program, recognized farming practices or events outside the taxpayer’s control.
The agencies are seeking public comment on the proposal. Written or electronic comments are due by Nov. 30, 2026.
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