# Election To Pay in Installments Tax on Gain From Certain Farmland Property: What CPA Firms Must Do Now > The IRS published proposed regulations on September 29, 2026 governing the statutory election to pay in four equal annual installments the tax on gain from selling qualified farmland to a qualified farmer. CPA firms with agricultural clients, land-owning individuals, and pass-through entities… **Source:** https://taxscout.ai/blog/election-to-pay-in-installments-tax-on-gain-from-certain-farmland-property-what **Published:** 2026-10-04 **Updated:** 2026-10-04T13:26:30.000-04:00 **Author:** Madiyar Kumurbekov, EA **Category:** news **Tags:** IRS Compliance, Tax Forms, Small Business Tax, Advisory Services, CPA Practice Management --- On September 29, 2026, the IRS released proposed regulations under [Election To Pay in Installments Tax on Gain From Certain Farmland Property](https://www.federalregister.gov/documents/2026/09/29/2026-19888/election-to-pay-in-installments-tax-on-gain-from-certain-farmland-property) (Federal Register Doc. 2026-19888). The election to pay in installments tax on gain from certain farmland property allows qualifying sellers to spread the federal income tax liability on the gain across four equal annual installments rather than paying the full amount in the year of sale — a significant cash-flow benefit for farmers transitioning land ownership. This is a proposed rulemaking, not a final rule, which means CPA firms have a window to submit comments and to begin proactive planning for clients who are currently marketing farmland, negotiating sales contracts, or who completed a qualifying transaction in the current tax year. Waiting for final regulations before advising clients is not a defensible posture; the proposed rules describe the mechanics in enough detail to begin analysis now. CPA firms advising clients on the election to pay in installments tax on gain from certain farmland property should use this comment window to flag any operational concerns before the rules are finalized. The rules are narrow in scope but operationally complex. They apply specifically when a taxpayer sells or exchanges 'qualified farmland property' to a 'qualified farmer,' and the seller formally elects installment treatment for the tax on the gain. CPAs must understand the eligibility criteria, the election mechanics, and the downstream reporting obligations before year-end client meetings begin. Understanding who qualifies is the first step, since the election to pay in installments tax on gain from certain farmland property is only available when both the seller and buyer meet the statute's specific definitions. ## What the Proposed Regulations Actually Change Prior to this rulemaking, the statutory authority for the installment election existed but lacked the procedural guidance practitioners needed to apply it with confidence. The proposed regulations fill that gap by specifying how the election is made, what the four-installment schedule looks like, and what happens if a seller subsequently transfers the installment obligation or the buyer defaults. Practitioners who attempted to apply the election to pay in installments tax on gain from certain farmland property before this guidance often encountered inconsistent treatment across IRS service centers, a problem these proposed regulations are designed to resolve. Key mechanics under the proposed rules include: the election is made on the seller's federal income tax return for the year of sale; the tax attributable to the gain — not the full tax liability — is divided into four equal annual payments beginning with the return due date for the year of sale; and interest accrues on deferred installments at the [underpayment rate published by the IRS under IRC Section 6621](https://www.irs.gov/pub/irs-drop/rr-24-01.pdf). The proposed regulations also clarify the definition of 'qualified farmer,' which is drawn from existing agricultural provisions in the [Internal Revenue Code as codified at Cornell Law](https://www.law.cornell.edu/uscode/text/26). For firms evaluating their election to pay in installments tax on gain from certain farmland property approach, this trade-off compounds over time. Importantly, this election is separate from the [installment sale](/glossary/installment-sale) rules under IRC Section 453. Sellers who elect installment sale treatment under Section 453 spread the *recognition* of gain across years; this election instead permits full recognition of gain in the year of sale but defers the *tax payment* into four equal pieces. Conflating the two provisions will produce incorrect return positions — flag this distinction in your internal training materials. Each of these factors directly shapes how election to pay in installments tax on gain from certain farmland property plays out in practice. (image: TaxScout review interface with AI research agents and client context) *Review with AI assist — 9 agents answer questions with full client context* **Which Client Segments and Filing Types Are Affected** --- **Tired of manual workflows slowing your firm down?** See how TaxScout handles this with AI-powered automation. [→ Book a 15-Min Demo](/demo) Understanding election to pay in installments tax on gain from certain farmland property in this context is what separates firms that scale from those that stall. --- The proposed regulations directly affect individual taxpayers filing **Form 1040** who own qualified farmland in their own name and sell to a qualified farmer. This is the most common scenario: a retiring farmer or an heir who inherited agricultural land. Gain from the sale flows to Schedule D and potentially [Schedule E](/glossary/schedule-e) if the land was used in a trade or business. This is precisely where a deliberate election to pay in installments tax on gain from certain farmland property strategy pays off. Pass-through entities holding qualified farmland — S corporations (Form 1120-S), partnerships ([Form 1065](/glossary/form-1065)), and LLCs taxed as either — present a more complex picture. The election is made at the entity level in some structures and at the partner or shareholder level in others; the proposed regulations address this allocation question, but the answer will depend on how the entity's operating agreement or shareholder agreement treats tax elections. Review your [Form 1065 partnership return](/blog/form-1065-partnership-return-guide) clients and any S-corp clients with agricultural holdings immediately. Election to pay in installments tax on gain from certain farmland property sits at the center of this decision — get it wrong and the rest unravels. C corporations are generally not eligible because the installment election is tied to individual-level tax attributes. Trusts and estates holding farmland that pass through gain to individual beneficiaries may qualify, but the fiduciary must trace through whether the beneficiary meets the 'qualified farmer' purchase test on the buyer side. Nonprofits and tax-exempt entities are outside scope entirely since they do not pay gain tax. See also our coverage on [net investment income tax exposure](/blog/net-investment-income-tax-guide), which may apply concurrently for high-income individual sellers. Geographic concentration matters here. Clients in major agricultural states — Iowa, Illinois, Kansas, Nebraska, Minnesota, California's Central Valley — are statistically more likely to have qualifying transactions. Segment your client list by state and entity type before your next planning cycle. --- **Tracking proposed regulations across dozens of agricultural clients manually?** TaxScout.ai's AI research agents monitor IRS and Federal Register publications in real time, so you surface client-relevant rule changes before the comment period closes. [→ See the Research Agents in Action](/features) --- ## What to Do This Week: A Firm Action List **1. Identify open and pending farmland transactions.** Pull all current-year engagements involving real property sales. Filter for clients who described the property as agricultural, farm, or timberland. Cross-reference against Schedule F filers and any Schedule E with farm rental income. These are your highest-probability candidates. **2. Verify buyer qualification.** The installment election only applies when the buyer is a 'qualified farmer' as defined in the statute. Reach out to clients who have already signed purchase agreements but have not yet closed to confirm buyer status. If the closing has not occurred, there may still be time to include a representation in the purchase agreement. **3. Document the election decision in the engagement file.** Whether a client elects or waives this installment treatment, document the analysis and the client's informed decision. This is a return position with a multi-year cash-flow consequence. Use your [e-signatures workflow](/features/e-signatures) to capture a written client acknowledgment alongside the [engagement letter](/glossary/engagement-letter). **4. Review entity operating documents.** For partnership and S-corp clients, confirm whether the entity agreement requires unanimous consent for tax elections. An inadvertent failure to elect — or an unauthorized election — at the entity level could create disputes among partners or shareholders. Flag this for your legal contacts. **5. Submit a comment if you have clients materially affected.** The proposed regulations are open for public comment for 60 days from the September 29, 2026 publication date. If the proposed mechanics create planning obstacles for your clients — particularly around installment interest computation or the interaction with Section 453 — the comment period is the appropriate channel. The [Treasury Department's regulatory docket](https://home.treasury.gov) accepts practitioner input. **6. Add a farmland election item to your year-end planning template.** If you do not already have a line item for this election in your year-end tax planning checklist, add one now. Our [1040 review checklist guide](/blog/1040-review-checklist-guide) is a good starting point for building that protocol. (image: TaxScout pipeline management kanban board showing tax returns across stages) *Track every return from intake to filed with drag-and-drop pipeline management* (image: TaxScout client portal interior showing document checklist and intake form) *Smart intake auto-fills from uploaded documents and prior-year data* ## Interaction With Existing Agricultural Tax Provisions The farmland installment election does not operate in isolation. Sellers of agricultural property may simultaneously be navigating Section 1231 gain characterization, unrecaptured Section 1250 [depreciation recapture](/glossary/depreciation-recapture) on improvements, and — for high-income clients — the 3.8% net investment income tax. The installment *payment* election defers the cash outflow but does not change the character or amount of gain recognized in year one. All of these characterization questions must be resolved first. For clients who have already elected installment *sale* treatment under Section 453 on a farmland sale in a prior year, the new election is not retroactively available to those prior-year transactions. The IRS has not issued transition guidance for sellers who closed before these proposed regulations were published. Until final regulations clarify the effective date, conservative advice is that only transactions closed on or after the date final regulations are published will have clear access to the election. State conformity is an independent issue. States do not automatically follow federal installment payment elections. [State tax conformity](/glossary/state-conformity) to this provision will vary, and in states that do not conform, the client will owe state tax in full in year one regardless of the federal election. Check your state's department of revenue guidance before projecting client cash flows. For practitioners tracking multi-state obligations, our [state tax deadlines resource](/state-tax-deadlines) is a useful reference. ## How to Track This Rule Change Across Your Entire Client Base The operational challenge for small and mid-size CPA firms is not understanding the rule — it is systematically identifying every client for whom the rule is relevant before a transaction closes without the election being considered. Manual monitoring of the Federal Register and cross-referencing against a client roster is time-intensive and error-prone. TaxScout.ai's [AI research agents](/features/ai-research-agents) continuously monitor IRS, Treasury, Cornell Law, and congressional sources for rule changes and surface them against your client context. When a proposed regulation like this one drops, the platform flags it against client profiles that include agricultural income, Schedule F filings, or real property assets — so you see a prioritized action list rather than a raw regulatory feed. You can also track affected engagements through the [pipeline management](/features/pipeline-management) board, moving flagged clients into a dedicated review stage. For firms that want to see how this works in practice before committing, [our news and regulatory coverage](/blog/category/news) includes other recent rule changes formatted for operational use — including the [Information Reporting for Qualified Opportunity Zones update](/blog/information-reporting-regarding-qualified-opportunity-zones-what-cpa-firms-must) and the [Allocation and Apportionment of Deductions to Foreign Source Income proposed rules](/blog/allocation-and-apportionment-of-deductions-to-foreign-source-income-new-irs-prop). (image: TaxScout dashboard showing production funnel and deadline tracker) *Real-time dashboard showing returns in progress, revenue, and upcoming deadlines* (image: TaxScout client detail view with document organizer and pipeline stages) *Every client gets organized documents, status tracking, and a complete history* ## Primary Source and Comment Deadline The full text of the proposed regulations is available at the Federal Register: [Election To Pay in Installments Tax on Gain From Certain Farmland Property](https://www.federalregister.gov/documents/2026/09/29/2026-19888/election-to-pay-in-installments-tax-on-gain-from-certain-farmland-property), Doc. 2026-19888, published September 29, 2026. The standard 60-day comment window runs through late November 2026. Comments should be submitted through regulations.gov referencing the docket number in the Federal Register notice. Practitioner comments that identify specific compliance burdens — particularly for small farms and pass-through entities — carry weight in Treasury's final rulemaking process. The Small Business Administration's Office of Advocacy also accepts input on regulatory impacts affecting small businesses, which can include small farming operations. Mark your calendar for the comment deadline, set a reminder to check for final regulations in early 2027, and schedule client conversations for any open farmland transactions before December 31, 2026. The window for election planning is the period between contract signing and the due date of the return for the year of sale — acting early preserves all options. --- **How many of your clients have a qualifying farmland transaction open right now?** TaxScout.ai surfaces regulatory changes against your client roster automatically — so nothing slips through between now and year-end close. [→ Book a Demo](/demo) ---