The next new topic in the AIM Financial IRS forms series is IRS Form 1062: Deferral of Tax on Gain From the Sale or Exchange of Qualified Farmland Property to Qualified Farmers.

This is a particularly timely subject because the form implements a new tax provision for eligible farmland sales in tax years beginning after July 4, 2025. Qualifying taxpayers may elect to pay the income tax attributable to the eligible gain in four equal annual installments, subject to strict property, buyer, and filing requirements.

AIM Financial | Tax Preparation for Grand Rapids, Kentwood, Wyoming, and West Michigan

Selling farmland can result in a substantial capital gain and a significant federal income tax bill. For families who have owned agricultural property for decades, the tax consequences of transferring land to another farmer can be an important part of retirement, estate, and succession planning.

A new IRS form offers eligible taxpayers an additional option. IRS Form 1062, Deferral of Tax on Gain From the Sale or Exchange of Qualified Farmland Property to Qualified Farmers, allows qualifying taxpayers to elect to pay the income tax attributable to certain farmland-sale gains in four equal annual installments.

For eligible farmland owners in Michigan and throughout the United States, understanding this form could help with planning the timing of tax payments when selling qualifying agricultural property.

What Is IRS Form 1062?

Form 1062 is used to elect installment payment of the portion of federal income tax attributable to a qualifying gain from selling or exchanging eligible farmland to a qualified farmer.

The provision was created by legislation enacted in 2025 and applies to qualifying sales or exchanges in tax years beginning after July 4, 2025.

The election does not eliminate the taxable gain or automatically make the sale tax-free. Instead, it allows the eligible portion of the tax liability to be paid over four annual installments, subject to the law’s requirements.

For example, imagine a family has owned farmland in West Michigan for many years and sells it to an eligible farmer. If the property, buyer, and transaction satisfy the requirements, the seller may be able to elect to spread the qualifying tax payment over four years rather than paying the entire eligible amount at once.

The actual tax savings, if any, depend on the taxpayer’s situation. This is primarily a tax-payment timing option, not a blanket exemption from tax on farmland gains.

Who May Qualify for the Form 1062 Election?

The election is available to eligible individuals and entities that recognize gain from a qualifying farmland sale or exchange. However, several requirements must be met.

1. The property must qualify as farmland

The property must be real property located in the United States. It generally must have been used by the taxpayer as a farm, or leased by the taxpayer to a qualified farmer for farming purposes, during substantially all of the 10-year period ending on the sale or exchange date.

The IRS definition of farming purposes covers activities such as raising agricultural commodities, caring for farm animals, and certain activities involving trees and woodlands.

Simply owning rural land does not necessarily satisfy the requirements. The property’s actual use and history must be reviewed.

2. The buyer must be a qualified farmer

The buyer must meet the legal definition of a qualified farmer, which generally requires the individual to be actively engaged in farming under the applicable federal law.

A buyer who purchases farmland as a passive real estate investment may not qualify simply because the property is agricultural land.

3. A farming-use covenant is required

The property must be subject to a qualifying covenant or other legally enforceable restriction that prohibits using the property for purposes other than farming during the 10-year period beginning the day after the sale or exchange.

This is an important requirement. The seller should not assume that a standard purchase agreement automatically satisfies the covenant rules.

The legal documents and the property’s history should be reviewed before relying on the election.

How Does the Four-Year Tax Payment Election Work?

If a taxpayer qualifies and properly elects under Section 1062, the tax attributable to the eligible gain can generally be paid in four equal annual installments.

The basic process involves these steps:

1. Determine whether the farmland sale or exchange qualifies.
2. Calculate the recognized gain and the tax attributable to that gain.
3. Complete Form 1062 and a separate Schedule A (Form 1062) for each qualifying sale or exchange included in the election.
4. Attach the required farming-use covenant and supporting information.
5. File the election by the applicable income tax return deadline.
6. Pay the first installment by the return’s original due date, without regard to an extension, and pay the remaining installments on the applicable due dates for the following three years.

The first installment is generally 25% of the applicable net tax liability calculated under the form’s rules. The calculation is more specific than simply taking 25% of the sale proceeds or 25% of the capital gain.

The taxpayer must calculate the eligible tax amount using the applicable tax-return figures and Form 1062 instructions.

Does Form 1062 Apply to Every Farmland Sale?

No. Not every agricultural property sale qualifies.

A transaction may fail to qualify if the property was not used or leased for farming purposes during substantially all of the required 10-year period, the buyer is not a qualified farmer, or the required covenant is missing or insufficient.

Other issues can affect the transaction, including ownership through partnerships or S corporations, installment-sale arrangements, and the allocation of gain among owners.

For example, if a partnership sells qualifying farmland, the partnership generally has its own Schedule A reporting responsibilities. A partner who wishes to make the election must follow the separate filing requirements for the partner’s share of the gain.

Because the rules depend on the ownership structure and transaction details, sellers should evaluate eligibility before completing the sale whenever possible.

Important Deadlines and Potential Risks

Form 1062 must generally be filed by the due date of the income tax return for the year of the qualifying sale or exchange, including extensions. However, the first installment must be paid by the original return due date, without regard to an extension.

An extension to file should therefore not be treated as an extension to pay the first installment.

Taxpayers should also understand that the remaining installments may become due sooner if certain events described in the law and IRS instructions occur. These acceleration rules can make the timing of later payments important.

Since this is a new tax provision, taxpayers should use the current Form 1062 instructions and review applicable IRS guidance before making the election.

Common Mistakes to Avoid

Farmland sellers should watch for these potential errors:

• Assuming every sale of agricultural land qualifies.
• Failing to document the property’s 10-year farming-use history.
• Overlooking the qualified-farmer requirement.
• Using a purchase agreement that does not satisfy the required covenant rules.
• Calculating the installments from the sale price instead of the applicable tax liability.
• Missing the filing deadline or original payment deadline.
• Ignoring special requirements when a partnership or S corporation owns the property.
• Assuming the election permanently eliminates tax rather than spreading eligible tax payments over four years.

Careful tax planning before the closing date can help identify these issues while there is still time to address them.

How AIM Financial Can Help With Farmland Sale Tax Planning

Selling farmland can involve more than calculating the difference between the sale price and the original purchase price. Adjusted tax basis, selling expenses, depreciation where applicable, ownership structure, and special federal tax provisions can all affect the final result.

AIM Financial helps individuals and businesses with tax preparation in Grand Rapids, Kentwood, Wyoming, and throughout West Michigan. If you are considering selling farmland, transferring agricultural property to another farmer, or reviewing the tax consequences of a recent sale, professional tax preparation assistance can help you understand which rules may apply.

AIM Financial can help you organize transaction records, identify important tax questions, and review the filing requirements associated with your federal return. For a transaction involving a potentially significant gain, it is wise to seek tax advice before finalizing the sale documents.

Contact AIM Financial for Tax Preparation Assistance

If you own farmland in West Michigan and are considering selling it, do not overlook the tax implications. The new Form 1062 election may offer qualifying sellers a way to spread the payment of eligible federal income tax over four years, but the requirements are specific.

Contact AIM Financial for assistance with federal income tax preparation and questions about farmland-sale reporting.

For official details, visit IRS.gov/Form1062 and review the current form, Schedule A, and instructions.

This article provides general educational information and is not individualized tax or legal advice.