Section 1062, explained.
Congress added a new door in 2025. Starting with sales in 2026, a landowner who sells qualified farmland to a working farmer can elect to pay the federal capital-gains tax in four equal annual installments instead of all at once. Plain English on what it is, who qualifies, and what to ask before you count on it.
What it is.
Section 1062 came out of the One Big Beautiful Bill Act. It is not a way to avoid the tax and it is not a 1031. The gain is still taxed. What changes is when: the seller elects to spread the federal capital-gains bill over four equal annual payments, and can still take the full sale proceeds in cash at closing. That last part is the difference from a traditional installment sale, where the tax follows the payments.
Three tests, all of them.
U.S. farmland (real estate and permanent improvements only; livestock, machinery, and equipment do not count) that you farmed yourself, or leased to an active farmer, for substantially all of the ten years before the sale.
A qualified farmer who is actively engaged in farming. A sale to an investor or a developer does not qualify.
The deed carries a recorded covenant keeping the land in agricultural use for at least ten years after closing.
The installments can come due all at once.
The unpaid installments can come due all at once. A missed payment, the death of the individual seller, or a liquidation or asset sale by a selling corporation or trust accelerates the remaining balance. This is one of the first things to model with your CPA.
How it sits beside the other doors.
Same sale, same buyer pool restrictions aside; 1062 changes the tax timing, not the tax.
A 1031 defers the tax by rolling into replacement property on a 45-day and 180-day clock. Section 1062 has no replacement property and no clock, but the tax is paid, just over four years.
A contribution defers the tax while you keep an interest; 1062 is for when you have decided to sell and want cash.
A member-first sale through the Exchange puts the ground with a working producer, which is exactly the buyer Section 1062 requires. Whether a given member sale qualifies is a question for your CPA on the specific facts.
Round numbers, illustrative only.
Round numbers, illustrative only, gross figures. A quarter section sells for $1,600,000 with $400,000 of basis. Federal capital-gains tax on the $1,200,000 gain at 20% is $240,000. Paid the ordinary way, that is $240,000 with the return for the year of sale. Under a 1062 election it is four annual payments of $60,000, while the seller holds the full sale proceeds from closing day. State tax, NIIT, and depreciation recapture are their own questions; run your own numbers in the calculator.
Nothing on this page is tax, legal, or investment advice. Section 1062 is new law and guidance is still developing; whether an election fits your sale is a decision for your CPA or attorney on your facts.
Run the numbers on your groundThe questions to ask first.
No: cash up front, tax spread; a 453 installment sale spreads both.
They are alternatives; talk to your CPA.
Ten-year recorded agricultural covenant.
Remaining installments accelerate.