How to Fill Out IRS Form 1062: Schedule A, Deferral, and Installments

To fill out IRS Form 1062 and elect to defer tax on a qualifying farmland sale, you complete a Schedule A for each property sold, work through Parts I and II to isolate the extra tax caused by the farmland gain, multiply that figure by 25% in Part III to get your first installment, and attach the form plus a copy of the Section 1062 covenant to your income tax return for the year of the sale.¹ The election spreads the tax over four equal annual payments. It does not reduce the rate on your gain.

Confirm the Sale Qualifies Before You Start

Form 1062 only works if three things are true about the transaction. The property must be qualified farmland: real property in the United States used as a farm, or leased to a qualified farmer for farming, during substantially all of the 10 years ending on the sale date. The buyer must be an individual actively engaged in farming as defined by 7 U.S.C. § 1308-1(b) and (c), which is a USDA farm-program standard, not simply anyone purchasing farmland. And the property must be subject to a Section 1062 covenant: a legally enforceable restriction limiting the land to farming use for the 10 years beginning the day after the sale.¹

The election is available only for sales in tax years beginning after July 4, 2025.² The deferral covers the farmland and permanent agricultural improvements. Equipment, livestock, and other personal property sold with the land are not eligible.

Gather What You Need Before Filling It Out

You will need the completed income tax return for the year of sale (the form uses figures from it), your closing documents showing the recognized gain, buyer identification, and a signed copy of the Section 1062 covenant. The covenant must exist at the time of the transaction and gets attached to the form when you file.³ Have an attorney draft the covenant before closing; the 10-year use restriction is a binding legal document, and an informal agreement will not satisfy the requirement.

Schedule A: One for Each Property

You complete a separate Schedule A for every qualified farmland property sold during the year. Schedule A captures information about the property, the buyer, and the recognized gain from that sale. The gain on Schedule A, line 13, is the figure that carries forward into the main form’s calculation.⁴ If you sold two qualifying tracts, you file two Schedule A forms and carry both gain figures into Part II.

Part I: Your Tax With the Farmland Gain

Part I captures what your actual tax bill looks like, gain included. Enter your regular income tax for the year as computed on your income tax return, add any additional taxes under Section 26(b)(2), then subtract the credits that apply to you: foreign tax credits, general business credits, and others listed in the instructions. The result on line 5 is your total net income tax for the year, with the farmland gain in the picture.⁴

Part II: Your Tax Without the Farmland Gain

Part II asks you to redo the calculation as if the sale had never happened. Start with your taxable income on line 6, subtract the recognized gain from Schedule A on line 7, and then recompute your regular tax, additional taxes, and credits using that lower taxable income. Line 13 is your hypothetical net income tax without the farmland gain.⁴

This is the trickiest section of the form. If you have other capital gains, losses, or credits that interact with the farmland gain, the recalculation gets layered fast, because removing the gain can shift bracket amounts, credit phase-outs, and limitation calculations. Sellers with gains large enough to justify a four-year deferral will usually want a tax professional preparing this part.

Part III: The Deferral Amount and First Installment

Part III is short and does the real work of the form. Line 14: subtract line 13 from line 5. The difference is your Section 1062 applicable net tax liability, meaning the slice of your total tax bill that exists only because of the farmland sale. Line 15: multiply line 14 by 25%. That figure is your first installment payment.⁴

The line 15 amount also goes on the applicable line of your income tax return, so the tax you owe with the return reflects the 25% installment rather than the full gain-related tax.⁴

Where and When to File

Attach Form 1062, every Schedule A, and a copy of each Section 1062 covenant to your income tax return for the year of the sale. For individuals, this means Form 1040. For C corporations, Form 1120. Filing the form is how you make the election; there is no separate election statement.¹

File by the due date of the return, including any extensions. Watch the split, though: the first installment payment is due by the original due date of the return, without regard to extensions.¹ A calendar-year individual who extends to October still owes that first 25% by April 15. Missing the payment deadline can accelerate the entire remaining balance.

The Remaining Three Installments

You pay the deferred tax in four equal installments, each equal to 25% of the applicable net tax liability from line 14.⁵

First installment: due on the original filing deadline (no extensions) for the tax year of the sale.
Second installment: due on the original filing deadline for the following tax year.
Third installment: due on the original filing deadline for the second year after the sale.
Fourth installment: due on the original filing deadline for the third year after the sale.

For a calendar-year individual who sells farmland in 2026, the payments fall on April 15 of 2027, 2028, 2029, and 2030. Every payment date ties to the unextended return due date whether or not you actually file on extension in that later year.¹ Track these dates on a separate reminder from your filing calendar.

What Can Collapse the Deferral

Several events cause the entire unpaid balance to come due at once.⁵ If the IRS assesses a penalty for failure to timely pay any installment, all remaining installments become due on the date of that failure. One missed payment ends the deferral. For an individual taxpayer, death of the taxpayer makes the unpaid balance due on the due date of the final income tax return. For C corporations, trusts, and estates, liquidation, selling substantially all assets, ceasing business operations, or filing for bankruptcy triggers immediate payment of the remaining balance.

Factor that risk into your planning before filing. If there is a realistic chance you will wind down the entity or dispose of substantially all your assets within the four-year window, the remaining tax could arrive in one bill rather than three future ones.

1
Internal Revenue Service. Instructions for Form 1062 (12/2025)
2
Internal Revenue Service. Publication 225 (2025) – Farmers Tax Guide
3
Internal Revenue Service. Instructions for Form 1062 (Rev. December 2025)
4
Internal Revenue Service. Instructions for Form 1062 (December 2025)
5
Office of the Law Revision Counsel. 26 USC 1062 – Gain From the Sale or Exchange of Qualified Farmland Property to Qualified Farmers