Written by Brandt Dupuis, Accountant
With tax law constantly changing, Darnall, Sikes, & Frederick wants to help you understand the changes coming from the One Big Beautiful Bill Act (OBBBA), a federal budget and tax regulation law that was signed on July 4th, 2025, by President Trump. This bill has brought up many different changes in the tax law that effects all Americans.
Section 70437 allows for taxes on a gain from the sale or exchange of qualified farmland to a qualified farmer to be paid in four equal installments over the span of four years starting in the year of the sale or exchange. To take advantage of this new law, you are required to file a new Form 1062 which provides information of each qualifying farmland, reports each sale/exchange that qualifies for the special election, calculates and reports the total tax liability and how much the taxpayer owes in the first year, and also allows you to elect to pay the tax on the gain in the four installments rather than all upfront. This new tax law and form impact any individual or business that owns a piece of qualified farmland and has a capital gain from the sale/exchange of said farmland to a qualified farmer. If the qualified sale/exchange is made by a partnership or S corporation, then the election is made at the partner or shareholder level.
A qualified farmer is simply any individual who is actively engaged in farming. Qualified farmland is defined by real property located in the United States “that has been used by the taxpayer either as a farm for farming purposes or leased by the taxpayer to a qualified farmer for farming purposes” as stated by the IRS. This property must have been used or leased by the taxpayer for farming purposes for at least a 10-year period that ends on the date of the sale/exchange. Along with these two qualifications comes a third stating that the property needs to have a covenant or “other legally enforceable restriction” that forces the use of the property to be strict to farming purposes for a 10-year period after the date of the sale/exchange. This new section and Form 1062 allow for taxpayers to gain a little relief in the year that they sell/exchange the qualified property, allowing them to stretch out the tax they owe on the gain to future years.
If you believe that you qualify for the election, then you should reach out to your tax advisor. Make sure you can prove that the land has been used as farmland for the past 10 years and that the individual gaining control of the land is a qualified farmer. The property must come with a legally enforceable restriction to make sure the property is used as farmland in the future. If confusion arises around this tax section and Form 1062, feel free to contact us and we will be happy to assist.
In order to become the most efficient with your taxes, stay informed with current tax law. Feel free to reach out to us with any questions or concerns. Thank you for trusting Darnall, Sikes, & Frederick.
References:
https://www.irs.gov/instructions/i1062
https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions