The installment sale
The oldest way to sell ground to the next operator: they pay over years, and under Section 453 the tax follows the payments. It is how farms have moved to kids, tenants, and neighbors for generations — and it has sharp edges the kitchen table rarely hears about. Plain English on both, written to make the hour with your CPA shorter, not to replace it.
How to read this guide. This is education, not advice, and nothing in it is an offer. Legacy Exchange doesn’t sell any investment; this guide exists because selling on payments — a contract for deed, a note, seller financing — is the first idea most land families reach for, and they deserve a plain-English account of what the tax code actually does with it. Whether it fits your sale is a question your CPA answers on your facts.
What Section 453 actually does
Sell ground and collect the price over years, and Section 453 spreads the capital-gains tax the same way: each payment carries its share of the gain, and you pay tax on that share in the year the payment arrives. No election paperwork to opt in — installment treatment is automatic when at least one payment lands after the year of sale, and a seller who wants the whole tax in year one instead can elect out.
The honest framing: an installment sale defers tax the way a snowbank defers water. Nothing is forgiven; it arrives on schedule. What you gain is matching — the tax bill lands in the same years the money does — plus interest income on the note, and, often, the only structure under which the next operator can afford the ground at all.
That last point is the reason this guide exists. A young operator — your kid, your tenant, the neighbor’s son — usually cannot write one check for a quarter section. Payments over fifteen years with the ground as security is how the sale happens at all, and it is how the ground stays in working hands. That continuity is the question this desk starts from.
What doesn’t spread
Four things a careful family hears before the paperwork, not after.
Everything you’ve depreciated — wells, pivots, fence, drainage, buildings — comes back as income in the year of sale, even if the down payment was small. A sale with heavy improvements and a light down payment can produce a tax bill bigger than the cash received. This surprises more families than anything else on this page.
A sale of depreciable property to certain related buyers may not qualify for installment treatment at all — and if a related buyer resells within two years, your remaining deferred gain can come due immediately. Selling to your kids is exactly when the rules get stricter, not looser.
Above certain thresholds (sale price over $150,000 and total outstanding installment notes over $5 million), the deferred tax itself accrues an interest charge. Most family sales sit under the line; a large operation may not.
If payments stop, you are a lender foreclosing on ground you used to own — with the tax you already paid staying paid. Price the buyer’s operation like a banker would before you price the land like a parent would.
Four doors, four different questions
They’re often pitched as rivals. They aren’t — they answer different questions.
Tax follows the payments; you hold the note and the risk; the ground goes to working hands on day one.
The question it answers: “I’ve picked the next operator; they need time to pay.”
Full proceeds at closing, federal tax paid in four equal annual installments, ten-year farming covenant on the deed. New for 2026 sales.
The question it answers: “I’m selling to a working farmer and want the cash now.”
Defers by rolling into replacement property on the 45/180-day clocks.
The question it answers: “I want different ground, not payments.”
No sale, no clock, tax deferred; the family holds a divisible interest and, where it fits, keeps operating.
The question it answers: “I don’t want to sell at all.”
Start from your question, not from whichever product found you first.
Ten questions to bring your CPA
Asked in this order, these ten cover the price, the family, the note, and the exits.
The share of every payment that carries tax is set at closing; see it before you set the terms.
The most common surprise on this page — measure it first.
Confirm the related-party rules against exactly who the buyer is.
The two-year rule can bring the rest of the tax due at once; plan for it in the contract.
Below-market family notes get rewritten by the applicable federal rate.
What does that schedule look like against the payment schedule we’re discussing?
Decide it while everyone’s on good terms, not after.
An installment note does not step up the way ground does.
Sometimes the clean break wins; run both.
If the real goal is stepping back while the family farms, compare it against a handoff and a contribution in the same hour.
This guide is education, not an offer. Legacy Exchange doesn’t sell notes, interests, or any investment, and nothing here is tax, legal, investment, or securities advice. Legacy Exchange’s role is to connect landowners with the appropriate licensed specialists — your CPA and attorney structure any sale on your facts.
Compiled September 2026 · Section 453 mechanics, thresholds, and related-party rules are your CPA’s to confirm against current law, not this guide’s