Form 1062 Farmland Tax Deferral Election: Filing and Disqualifiers

To fill out Form 1062, you calculate your federal income tax twice — once with the farmland gain and once without — take the difference as the tax caused by the sale, and pay 25% of that difference with your return for the year of sale. The form has three parts and rides along with a separate Schedule A for each qualifying sale plus a copy of the 10-year farm-use covenant. Attach the whole packet to your income tax return by its due date, including extensions.¹

Confirm You Actually Qualify Before You Start

Three conditions have to be true, and if any one fails the form does you no good.

The buyer must be a qualified farmer — an individual actively engaged in farming within the meaning of the Food Security Act of 1986. Your own farming history doesn’t substitute; what matters is who you sold to.²

The property must be U.S. real estate that you used as a farm for farming purposes, or leased to a qualified farmer for farming purposes, during substantially all of the 10-year period ending on the date of sale. The terms “farm” and “farming purposes” track the section 2032A(e) definitions. If a partnership or S corporation you had an interest in used or leased the land in a qualifying way, that use is attributed to you.¹

And there has to be a section 1062 covenant in place at the time of sale: a legally enforceable restriction prohibiting the land from being used for anything other than farming for 10 years after the sale. No covenant, no election. The statute does not dictate a format, but the restriction must actually bind the buyer, which in practice means a recorded covenant or comparable enforceable agreement drafted before closing.²

Individuals, C corporations, trusts, and estates can make the election directly. Partnerships and S corporations cannot — the election is made by each partner or shareholder on their own return, which is covered further down.

What Goes in the Packet

Everything gets attached to your income tax return for the year of the sale:

Form 1062 itself (one per taxpayer, not one per sale).
A separate Schedule A (Form 1062) for each qualifying sale or exchange.
A copy of the section 1062 covenant for each sale.³

Complete the Schedules A before Form 1062, because Form 1062 line 7 pulls from the Schedule A gain figures.

Filling Out Schedule A

Schedule A is where you describe the property, report the transaction details, and calculate the recognized gain from that particular sale. The gain figure on line 13 of Schedule A feeds into line 7 of Form 1062. If you have three qualifying sales, you attach three Schedules A, and Form 1062 line 7 is the total of all three line 13s.³

Partners and shareholders receiving pass-through information do a shorter version: complete your own Schedule A but leave lines 9 through 12 blank, and on line 13 enter your share of the gain as reported to you on Form 1065 Schedule K-1 box 20 or Form 1120-S Schedule K-1 box 17, code ZZ.

Filling Out Form 1062

Part I: Tax With the Farmland Gain

Part I is your net income tax for the year as actually computed — that is, including the farmland gain.³

Line 1: your regular income tax from the applicable line of your return (Form 1120 Schedule J line 1a for C corporations, or the equivalent line on Form 1040).
Line 2: any additions to regular tax.
Line 3: lines 1 and 2 added together — regular tax liability before credits.
Lines 4a through 4d: foreign tax credit, nonrefundable personal credits, general business credits, and any other applicable credits.
Line 4z: total of lines 4a through 4d.
Line 5: line 3 minus line 4z. This is your total net income tax for the year.

Part II: Tax Without the Farmland Gain

Part II is a shadow calculation. You redo the same numbers as if the farmland gain had never happened.³

Line 6: your actual taxable income for the year.
Line 7: total recognized gain from all Schedules A, line 13.
Line 8: line 6 minus line 7 — taxable income without the farmland gain. Zero if the subtraction goes negative.
Lines 9 and 10: recompute regular income tax and additions using line 8 as the taxable income figure.
Line 11: lines 9 plus 10 — redetermined regular tax liability.
Lines 12a through 12d and 12z: recompute your credits against line 11 instead of line 3. This is the step that trips people up, because credits often change when taxable income changes; lines 12a–12d generally will not match lines 4a–4d.
Line 13: line 11 minus line 12z — net income tax as if there had been no farmland gain.

Part III: The Numbers That Matter

Part III produces the two figures you carry back onto your return.⁴

Line 14: line 5 minus line 13. This is the section 1062 applicable net tax liability — the extra tax caused by the farmland gain. Enter it on the applicable line of your return.
Line 15: 25% of line 14. This is your first installment. Enter it on the applicable payment line of your return.

Because of the credit recalculation in Part II, running the figures through tax software or having a preparer check the interaction between credits and the installment calculation is usually worth the cost.

If the Sale Was Made by a Partnership or S Corporation

The entity does not file Form 1062. It completes Schedule A (Form 1062) with its own return and reports each partner’s or shareholder’s share of the gain on Form 1065 Schedule K-1 box 20 or Form 1120-S Schedule K-1 box 17, code ZZ, with an attached statement. It also gives each partner or shareholder a copy of the entity’s Schedule A and a copy of the covenant.¹

Each partner or shareholder then decides independently whether to make the election. Those who elect file their own Form 1062 and their own Schedule A with their personal return, using the allocated share on line 13 of Schedule A.

Filing and Paying

Attach the packet to your income tax return by its due date, including extensions.¹

Filing and paying run on different clocks. The first installment is due on the original, unextended due date of the return for the year of sale. For most individuals, that is April 15 of the following year. A filing extension does not push the payment date. Missing that first payment can accelerate the entire remaining balance.

The three later installments follow the same rule: each is due on the original, unextended due date of the return for its year, regardless of whether you extend filing that year. An individual who sells qualifying farmland in 2026 would pay on April 15 of 2027, 2028, 2029, and 2030, subject to weekend and holiday shifts.

What Can Undo the Deferral

Several events accelerate any unpaid installments so the whole remaining balance is due at once:⁵

An installment goes unpaid and a failure-to-pay addition to tax is imposed; the remaining installments become due on the date of the failure.
An individual taxpayer dies; unpaid installments come due with the return for the year of death.
A C corporation, trust, or estate liquidates, sells substantially all its assets, ceases business (for C corporations), or hits a similar event; the balance is due on the date of that event. In bankruptcy or a similar case, the balance is due the day before the petition is filed.

If the IRS later assesses a deficiency tied to the farmland gain, the deficiency is prorated across all four installments. The portion allocated to installments already due must be paid on notice and demand; the portion allocated to future installments is collected when those installments come due. Deferring the tax does not defer a deficiency’s structure, only its timing along the same four-payment track.

1
Internal Revenue Service. Instructions for Form 1062 (12/2025)
2
Office of the Law Revision Counsel. 26 USC 1062 – Gain From the Sale or Exchange of Qualified Farmland Property to Qualified Farmers
3
Internal Revenue Service. Instructions for Form 1062 (December 2025)
4
Internal Revenue Service. Form 1062 (December 2025)
5
Office of the Law Revision Counsel. 26 U.S. Code 1062 – Gain From the Sale or Exchange of Qualified Farmland Property to Qualified Farmers