For landowners thinking about selling their land, capital gains taxes can be one of the biggest financial hurdles. A new provision in federal tax law, Tax Code 1062, may provide additional flexibility by allowing qualifying landowners to spread capital gains tax payments over four years rather than paying the full amount in the year of sale.

While the rule is still new and additional guidance from the IRS is expected, Tax Code 1062 has already generated significant interest among farmland owners, farm families, and succession planning professionals.

Here’s what to know about Tax Code 1062! 

What Is Tax Code 1062?

Tax Code 1062 was introduced as part of the “One Big Beautiful Bill” and is specifically designed to support agricultural landowners. According to farm succession planning attorney Mark Balzarini of Helmut & Johnson, the provision allows eligible sellers of farmland to defer payment of capital gains taxes and pay them in equal installments over four years.

“The biggest piece to that bill that’s helpful,” Balzarini explained, “is giving some time to the farm to absorb that cost and figure out ways to mitigate the damage that can be caused by that tax.” Importantly, Tax Code 1062 does not eliminate capital gains taxes. Instead, it spreads the payment over time, potentially improving cash flow and providing greater financial flexibility after a sale.

How Is It Different from a 1031 Exchange?

Many landowners are familiar with 1031 exchanges, which allow sellers to defer capital gains taxes by reinvesting proceeds into other qualifying real estate. Tax Code 1062 offers a different approach. “The biggest advantage I see with this is they can sell the property, invest in whatever they want to invest in, and they don’t have to invest back into farmland or real estate,” Balzarini said.

This flexibility could appeal to retiring landowners, families seeking to diversify their investments, or individuals who want access to cash without committing to another real estate purchase.

Who Qualifies?

To qualify for the benefits of Tax Code 1062, the land generally must have been actively farmed, or leased to someone who farmed it, for at least 10 years before the sale. The buyer must also agree to keep the property in agricultural use for 10 years following the transaction. This requirement is enforced through a recorded covenant attached to the property.

“The goal for this isn’t that we sell this land and it gets invested for other purposes,” Balzarini said. “It’s supposed to help preserve farmland.” The buyer does not necessarily have to farm the property personally. Leasing the land to a farmer can satisfy the agricultural-use requirement.

Potential Benefits for Farm Families

Although Tax Code 1062 is unlikely to replace other estate planning and land transfer strategies, it provides another option for families navigating farm succession.

Balzarini views the provision as another tool in the toolbox to address specific financial needs. For example, families may use it to generate cash for retirement, long-term care expenses, or to facilitate a transition between generations while reducing the immediate tax burden associated with a sale.

Important Considerations

Because the law is still new, several questions remain about how certain situations will be handled. The IRS has already begun issuing guidance and is expected to release additional clarifications in the future.

Landowners should also understand that if the buyer fails to maintain the property’s agricultural use requirements, there could be consequences for the seller, including the acceleration of deferred taxes and potentially additional penalties or interest.

For that reason, Balzarini emphasizes the importance of careful planning and strong legal documentation. “This type of contract isn’t going to be something you want to do without reviewing these documents with both the buyer and the seller,” he said.

For farmland owners considering a sale, Tax Code 1062 introduces a new level of flexibility that wasn’t previously available. While it won’t be the right solution for every situation, it may help certain landowners better manage tax obligations, improve cash flow, and achieve long-term financial goals.

As with any significant land transaction, consulting with qualified tax, legal, and land professionals is essential to determine whether Tax Code 1062 fits your specific circumstances.

Whether you’re planning for retirement, transferring land to the next generation, or exploring options for selling farmland, we’re here to help. Click here to get in touch with your local Land Professional today!