IRC §1062 Farmland Installment Tax (IR-2026-115): Proposed Rules for Qualifying Sales to Active Farmers | YCL | YCL CPA

Author: Chenchen Liu, CPA ｜ YCL Tax, Accounting & Advisory

Bottom line in one breath

On September 28, 2026, Treasury and the IRS issued IR-2026-115 with proposed regulations under IRC §1062, which lets eligible taxpayers elect to pay the tax attributable to gain from certain U.S. farmland sales or exchanges to qualified farmers in four equal annual installments (25% each). The election applies to qualified sales or exchanges in taxable years beginning after July 4, 2025 (Working Families Tax Cuts / One Big Beautiful Bill Act). Core gates include roughly 10 years of prior farming use (or lease to a qualified farmer), a 10-year post-sale farming-only covenant, and a buyer who is an individual actively engaged in farming. The first installment is generally due on the regular return due date without regard to extensions; partners and S-corp shareholders generally elect on their own share. Comments are due by November 30, 2026. For Cary/RTP and North Carolina farm families, landowners, and investors evaluating a qualifying sale, this is compliance planning—cash-flow calendaring, Form 1062 / Schedule A, and covenant diligence—not a promised tax result.

Background

Congress added IRC §1062 in the July 4, 2025 tax law package (often called the Working Families Tax Cuts / One Big Beautiful Bill Act). Before §1062, gain from selling farmland was generally recognized under ordinary rules, and the related federal income tax was typically due for that tax year under the usual payment rules (subject to estimated tax and any other applicable provisions)—there was no dedicated four-year installment election for the tax on that gain tied to keeping land in farming hands. IR-2026-115 announces the first set of proposed regulations explaining how the election works, how pass-through owners elect, and how temporary out-of-production periods can still meet the prior-use test. The IRS also published Form 1062 and Schedule A (Form 1062) (December 2025) so electing taxpayers can report each qualified sale, compute the section 1062 applicable net tax liability, and show the first 25% installment. Until final regulations are issued, secondary coverage notes that taxpayers may rely on the proposed rules for qualifying sales in years beginning after July 4, 2025; written comments are due November 30, 2026.

Old rules vs. §1062 installment election

1. Timing of tax payment on farmland gain: Previously, no special four-year installment election existed solely for the tax on gain from selling farmland to an active farmer. Now (years beginning after July 4, 2025): eligible taxpayers may elect under §1062 to pay the applicable net tax liability in four equal annual installments.

2. Who the buyer must be: Ordinary land sales to any buyer did not unlock this election. Now: the buyer must be a qualified farmer—an individual actively engaged in farming under the referenced USDA-linked standard (7 U.S.C. 1308-1(b)/(c)).

3. Prior use of the land: Selling any U.S. acreage was not enough. Now: the real property must generally have been used by the taxpayer for farming purposes, or leased to a qualified farmer, during substantially all of the 10 years before the sale or exchange. Proposed regs address temporary out-of-production under government programs, recognized farming practices, or events outside the taxpayer’s control.

4. After the sale: No special federal §1062 covenant was required for ordinary recognition. Now: the property must be subject to a legally enforceable section 1062 covenant that generally bars non-farming use for 10 years after the sale or exchange.

5. Pass-through sales: Entity-level confusion was common before clear guidance. Now (proposed / Form 1062 instructions): for partnership or S corporation sales, partners and shareholders generally make their own elections on their share of the gain; the entity files Schedule A and furnishes K-1 / covenant information. Similar ideas apply when gain passes through a trust or estate to a beneficiary.

6. First payment vs. extended filing: Filing on extension did not change ordinary “tax for the year” payment concepts in the same way. Now: the election may be made on a return filed by the due date including extensions, but the first installment is still due on the regular due date without regard to extensions.

Self-check: does this affect you?

1. You (or your family / LLC / partnership / S corp) own U.S. farmland in North Carolina or elsewhere and are considering a sale or exchange to an active farmer.

2. The land was farmed by you—or leased to a qualified farmer—for most of the past 10 years (including possible temporary out-of-production facts to document).

3. The buyer is willing (and able) to accept a 10-year farming-only restriction documented as a section 1062 covenant.

4. You expect material capital gain and care about cash-flow timing of the related federal tax over four years—not about inventing a lower rate.

5. You hold the land through a partnership, S corporation, trust, or estate and need clarity on who elects and what Schedule A / Form 1062 packages to keep.

6. You are a Cary/RTP investor, heir, or farm-family decision-maker who wants bilingual compliance planning before closing—not a social-media “shortcut.”

Simplified example (illustration only—not a recommended path or promised outcome)

Assume three illustrative Cary / Research Triangle–area profiles after IR-2026-115 (numbers are simplified; real Form 1062 math, basis, selling costs, state tax, and estimated-tax rules are ignored here):

1. Scenario A — farm family sale: The Chen family sells qualifying NC farmland to an individual buyer who is actively engaged in farming, with a recorded §1062 covenant. If they validly elect, the applicable net tax liability on the gain is split into four 25% installments, with payment #1 due on the regular return due date without extension for the year of sale.

2. Scenario B — pass-through owners: An S corporation sells qualifying farmland. The corporation files Schedule A (Form 1062) and reports each shareholder’s share of gain; each shareholder who wants the election files Form 1062 plus their own Schedule A. One shareholder may elect while another pays in full—facts drive the choice; this blog does not pick for you.

3. Scenario C — covenant diligence: A buyer wants the land for mixed future development. Without a qualifying 10-year farming restriction and qualified-farmer buyer, §1062 installment payment of the tax generally does not apply—ordinary recognition and payment rules remain the baseline.

Different deeds, leases, entity charts, and closing timelines → different outcomes; a blog cannot elect for you.

Action timeline

1. Before listing / LOI: inventory deeds, lease history, farming-use evidence for the prior ~10 years, and whether a buyer can meet the actively engaged in farming standard.

2. Before closing: counsel and CPA review of the draft section 1062 covenant, title/recording plan, and whether the transaction is a qualified sale or exchange.

3. Sale year (years beginning after July 4, 2025): calendar the first 25% installment on the regular return due date (no extension), even if you plan to file Form 1062 on extension.

4. With the return: attach Form 1062, each needed Schedule A, and a copy of the covenant(s); partnerships/S corps coordinate K-1 and Schedule A packages for owners who may elect.

5. Years 2–4: pay remaining installments on each year’s regular return due date (no extension); watch acceleration triggers in the Form 1062 instructions (for example, failure to timely pay an installment, or certain death / entity events).

6. By November 30, 2026: stakeholders may submit comments on the proposed regulations per IRS instructions; monitor final regs and Form 1062 updates on IRS.gov.

What YCL can do

1. Map whether a planned NC / U.S. farmland sale is a candidate for §1062 compliance planning—eligibility narrative, not a promised tax amount.

2. Coordinate Form 1062 / Schedule A worksheets with your closing package and estimated-tax calendar (first installment without extension).

3. Support partnership / S corp / trust / estate owners on who elects, what the entity files, and what each owner keeps in the file.

4. Help document prior farming use and temporary out-of-production facts the proposed rules discuss, for discussion with counsel on the covenant.

5. Bilingual (EN/ZH) advisory with CPA Chenchen Liu and Gloria; offices in Cary (RTP) and Shanghai; Free Consultation.

FAQ

Q: What did IR-2026-115 announce?

A: On September 28, 2026, Treasury and the IRS issued proposed regulations under IRC §1062 on electing to pay tax attributable to gain from certain U.S. farmland sales or exchanges to qualified farmers in four equal annual installments. Comments are due by November 30, 2026.

Q: When is the first §1062 installment due?

A: Generally on the regular due date of the federal income tax return for the year of the sale or exchange, without regard to extensions. Later installments follow on the regular due dates for the next three years. The election itself may be made on a return filed by the due date including extensions, but the first payment is still due without extension.

Q: Who elects if a partnership or S corporation sells the farmland?

A: Per IR-2026-115 and Form 1062 instructions, partners and shareholders generally make their own elections with respect to their share of the gain. The partnership or S corporation typically files Schedule A (Form 1062) and provides owners with gain and covenant information; electing owners file Form 1062 and Schedule A.

Q: Does §1062 reduce the tax rate on farmland gain?

A: No. §1062 is about when eligible taxpayers may pay the applicable net tax liability on qualifying gain (four equal installments), subject to strict property, buyer, and covenant rules. It is not a rate cut and this article does not promise any tax result.

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Disclaimer

This article is general tax information only and is not tax, legal, or investment advice for any person or business, and it is not a promise of any installment eligibility, penalty, refund, or exam outcome. Application depends on your facts, documents, filings, and current IRS statutes, forms, and proposed or final regulations. Consult a licensed professional for advice specific to you.