# Prop. Treas. Reg. § 1.1062-1: Section 1062 general rules and definitions. Proposed regulation, not in force. REG-117095-25, 91 FR 61367, published 2026-09-29 . Interprets 26 U.S.C. § 1062. Par. 2. Sections 1.1062-0 through 1.1062-3 are added to read as follows: (a) Scope. Section 1062(a) of the Internal Revenue Code (Code) allows a taxpayer that recognizes gain from the sale or exchange of qualified farmland property to a qualified farmer to make a section 1062 election to pay in four equal annual installments the portion of the taxpayer's net income tax for the taxable year of the qualified sale or exchange that is equal to the taxpayer's applicable net tax liability. Paragraphs (b) through (w) of this section set forth general rules and define terms for purposes of this section and §§ 1.1062-2 and 1.1062-3, and paragraph (x) of this section contains examples. Section 1.1062-2 provides rules regarding eligibility for and making a section 1062 election, paying the installments, and other special rules. Section 1.1062-3 provides rules regarding events that may result in the acceleration of the unpaid portion of all remaining installment payments. (b) Acceleration event. The term acceleration event means an event described in § 1.1062-3(b)(1). (c) Applicable net tax liability. The term applicable net tax liability means an amount described in § 1.1062-2(d). (d) C corporation. The term C corporation means a C corporation as defined in section 1361(a)(2) of the Code. (e) Commissioner. The term Commissioner means the Commissioner of Internal Revenue or the Commissioner's delegate. (f) Consolidated group; member. The term consolidated group means a consolidated group as defined in § 1.1502-1(h). The term member means a member (within the meaning of § 1.1502-1(b)) of a consolidated group. (g) Eligible section 1062 transferee. The term eligible section 1062 transferee means a single United States person, as defined in section 7701(a)(30) of the Code, that is not— (1) A partnership or an S corporation; (2) A debtor in a case under title 11 of the United States Code or a similar case (title 11 or similar case); or (3) Insolvent (within the meaning of section 108(d)(3) of the Code). (h) Eligible section 1062 transferee exception. The term eligible section 1062 transferee exception means the exception described in § 1.1062-3(c)(1). (i) Eligible section 1062 transferor. The term eligible section 1062 transferor means a C corporation, trust, or estate— (1) That makes a section 1062 election; and (2) With respect to which an acceleration event has occurred. (j) Farm. The term farm means a farm as defined in section 2032A(e)(4) of the Code. (k) Farming purposes. The term farming purposes means farming purposes as defined in section 2032A(e)(5). (l) Net income tax. The term net income tax means the taxpayer's regular tax liability (as defined in section 26(b) of the Code) reduced by the credits allowed under subparts A, B, and D of part IV of subchapter A of chapter 1 of the Code. (m) Pass-through entity. The term pass-through entity means a partnership, an S corporation, or any other person other than a C corporation if any of the person's gain from a qualified sale or exchange may be included in the income of one or more direct or indirect owners or beneficiaries of the person. If an entity other than a C corporation is subject to Federal income tax on a portion of the gain from a qualified sale or exchange and its owners or beneficiaries are subject to tax on the remaining portion, the entity is treated as a pass-through entity, and both the person and each owner or beneficiary of the person may make the election under section 1062 with regard to their respective shares of that gain. (n) Prior 10-year period. The term prior 10-year period means the 10-year period ending on the date of the qualified sale or exchange. (o) Qualified farmland property —(1) In general. The term qualified farmland property means real property located in the United States, as defined in section 7701(a)(9), that— (i) During substantially all of the prior 10-year period— (A) Has been used by the taxpayer as a farm for farming purposes; or (B) Has been leased by the taxpayer to a qualified farmer for farming purposes; and (ii) Is subject to a section 1062 covenant that is attached to the taxpayer's Federal income tax return (return) for the relevant taxable year. (2) Certain periods of non-use disregarded. If all necessary functions, such as land management activities (for example, protecting the soil from erosion), continue to be performed to maintain real property for farming purposes, real property will not fail to be considered as real property described in paragraph (o)(1)(i)(A) or (B) of this section, as applicable, during periods in which— (i) The real property is taken out of production pursuant to a Federal, State, Tribal, or local government program; (ii) The real property is taken out of production pursuant to recognized good farming practices (for example, laying fallow or conditioning the soil); or (iii) The real property is taken out of production due to unforeseen events caused by factors outside the taxpayer's control, such as natural disasters. (3) Certain acquisitions of qualified farmland property during the prior 10-year period. If the taxpayer acquired the real property during the prior 10-year period under circumstances described in any of paragraphs (o)(3)(i) through (iii) of this section, the taxpayer may count any period described in paragraphs (o)(3)(i) through (iii) of this section, as applicable, toward the taxpayer's satisfaction of the requirement described in paragraph (o)(1)(i) of this section. (i) If the taxpayer acquired the real property in a transaction in which the taxpayer's holding period for the real property is determined under section 1223(1) of the Code, the taxpayer may include the period during the prior 10-year period for which the taxpayer— (A) Used the real property exchanged as a farm for farming purposes; or (B) Leased the real property exchanged to a qualified farmer for farming purposes. (ii) If the taxpayer acquired the real property in a transaction in which the taxpayer's holding period for the real property is determined under section 1223(2), the taxpayer may include the period during the prior 10-year period in which the other person— (A) Used the real property as a farm for farming purposes; or (B) Leased the real property to a qualified farmer for farming purposes. (iii) If the taxpayer acquired the real property by reason of a decedent's death, the taxpayer may include the period during the prior 10-year period in which the decedent— (A) Used the real property as a farm for farming purposes; or (B) Leased the real property to a qualified farmer for farming purposes. (4) Certain residential real property. For purposes of this paragraph (o), residential buildings and related improvements (as described in section 2032A(e)(3), substituting the requirements of section 1062(d) for the requirements under section 2032A(b)(1)(C)) are considered to be used or leased by the taxpayer for farming purposes. (5) Real property partially used or leased for farming purposes. For purposes of this paragraph (o), if only a portion of the real property is used or leased for farming purposes, only that portion of the real property is considered to be qualified farmland property. (6) Portion of real property covered by covenant. For purposes of this paragraph (o), if only a portion of the real property is subject to a section 1062 covenant, only the portion of the real property that is subject to the section 1062 covenant that is attached to the taxpayer's return for the relevant taxable year is considered to be qualified farmland property. (7) Real property used or leased by a pass-through entity —(i) Use of qualified farmland property by a pass-through entity. For purposes of this paragraph (o), real property used or leased by a pass-through entity in a manner described in proposed paragraph (o)(1)(i) of this section during any period is considered used or leased in such manner by each person who holds a direct or indirect beneficial or equity interest in that pass-through entity during such period. A person who holds a direct or indirect beneficial or equity interest in the pass-through entity for only a portion of such period is considered to use or lease the property in a manner described in proposed paragraph (o)(1)(i) only during such portion of the period. (ii) Sale or exchange by a pass-through entity. In the case of a sale or exchange of real property by a pass-through entity, the determination of whether the real property is qualified farmland property must be made separately by each person who holds a direct or indirect beneficial or equity interest in that pass-through entity. (8) Real property. For purposes of this section, the term real property has the meaning provided in § 1.1031(a)-3(a). (p) Qualified farmer —(1) In general. A qualified farmer is an individual who is actively engaged in farming within the meaning of 7 U.S.C. 1308-1(b) and (c). (2) Plan or arrangement. The term qualified farmer does not include an individual if, pursuant to a plan or an arrangement between the seller, buyer, and a third party existing at the time of a sale or exchange of qualified farmland property to that individual, the qualified farmland property subsequently is transferred to a person who is neither— (i) A related person within the meaning of section 267(b) or section 707(b)(1) of the Code with respect to that individual; nor (ii) A qualified farmer. (q) Qualified sale or exchange. The term qualified sale or exchange means a sale or exchange of qualified farmland property to a qualified farmer. (r) Relevant taxable year. The term relevant taxable year means the taxable year of the qualified sale or exchange. (s) S corporation. The term S corporation means an S corporation as defined in section 1361(a)(1) of the Code. (t) Section 1062 covenant —(1) In general. With respect to real property, the term section 1062 covenant means a covenant or other legally enforceable restriction that— (i) Prohibits the use of the real property other than as a farm for farming purposes for any period before the date that is 10 years after the date of the sale or exchange of the real property; (ii) Is executed prior to or contemporaneously with the closing of the sale or exchange; (iii) Is recorded in the land records office of the jurisdiction in which the real property is located prior to or contemporaneously with the filing of the deed of transfer of the real property; (iv) Is enforceable against the buyer and all future owners of the real property prior to or beginning with the date of the sale or exchange of the real property; and (v) Does not cease to be enforceable against the buyer and all future owners of the real property on a date earlier than the date that is 10 years after the date of the sale or exchange. (2) Other legally enforceable restrictions. The term section 1062 covenant includes an easement or other interest in real property that, under applicable law, has attributes similar to a covenant (for example, an equitable servitude). (u) Section 1062 election. The term section 1062 election means the election described in § 1.1062-2(a). (v) Specified individual. The term specified individual means a person described in § 1.6081-5(a)(5) or (6) who receives an extension of time under § 1.60815(a) for filing a return and for paying any tax shown on the return for the taxable year. (w) Transfer agreement. The term transfer agreement has the meaning provided in § 1.1062-3(c)(2). (x) Examples. The following examples illustrate the application of the rules of this section. (1) Example 1: Certain periods of non-use disregarded —(i) Facts. Individual J has gain from the sale of real property that is subject to a section 1062 covenant, which J attached to J's return for the relevant taxable year. During the prior 10-year period, J used the real property to grow crops during the spring and summer growing seasons. During the nonproducing seasons, J performs all necessary functions to maintain the real property for farming purposes. In addition, during that prior 10-year period, J left the real property fallow every third year as part of J's crop rotation strategy to restore soil fertility, conserve moisture, and prevent pests and diseases. During those periods in which the real property has been left fallow, J performs all necessary functions to maintain the real property for farming purposes. (ii) Analysis. To determine whether the real property has been used as a farm for farming purposes during substantially all of the prior 10-year period for purposes of paragraph (o)(1)(i) of this section, J may include both the nonproducing seasons and the fallow periods because J has performed all necessary functions to maintain the real property for farming purposes. Because the real property is subject to a section 1062 covenant (which J attaches to J's return for the relevant taxable year) and has been used as a farm for farming purposes during substantially all of the prior 10-year period, pursuant to paragraph (o)(2)(ii) of this section, the real property qualifies as qualified farmland property. (2) Example 2: Certain acquisitions of qualified farmland property during the prior 10-year period —(i) Facts. Individual K uses Property A as a farm for farming purposes for six years. K exchanges Property A for Property B in an exchange qualifying under section 1031 of the Code. K uses Property B as a farm for farming purposes for an additional four years before selling Property B to a qualified farmer at a gain. Property B is subject to a section 1062 covenant (which K attaches to K's return for the relevant taxable year). (ii) Analysis. To determine whether Property B has been used as a farm for farming purposes during substantially all of the prior 10-year period for purposes of paragraph (o)(1)(i) of this section, K may include the period during which K used Property A as a farm for farming purposes. Because Property B is subject to a section 1062 covenant (which K attaches to K's return for the relevant taxable year) and has been used as a farm for farming purposes during substantially all of the prior 10-year period, pursuant to paragraph (o)(3)(i) of this section, Property B qualifies as qualified farmland property. (3) Example 3: Qualified farmer's acquisition through a disregarded entity —(i) Facts. Individual N is a qualified farmer who operates his farming business through Y, a limited liability company that is disregarded as an entity separate from N for Federal income tax purposes. Y enters into an agreement to purchase a qualified farmland property (Property C), from Individual O. Y will continue to use Property C for farming purposes after the sale. (ii) Analysis. Because Y is disregarded as an entity separate from N for Federal income tax purposes, Y's purchase of Property C is treated as a purchase by N, who is a qualified farmer. Accordingly, if O otherwise satisfies the requirements to make a section 1062 election, O may make a section 1062 election. (4) Example 4: Qualified farmer's subsequent contribution to an S corporation —(i) Facts. The facts are the same as in paragraph (x)(3)(i) of this section ( Example 3 ), except that N enters into an agreement to purchase Property C directly from O, and N plans on contributing Property C to P (an S corporation wholly owned by N). (ii) Analysis. N had a plan to contribute Property C to N's wholly owned S corporation P at the time N purchased Property C from O. However, because N will transfer Property C to a related person, the acquisition by N is respected as an acquisition by a qualified farmer pursuant to paragraph (p) of this section. (5) Example 5: Failure to attach the section 1062 covenant to the return for the relevant taxable year— (i) Facts. Individual P has owned Property Q, which is real property as defined in paragraph (o)(8) of this section that is located in the United States, and used as a farm for farming purposes for the last eleven years. In year twelve, P sells Property Q, which is subject to a section 1062 covenant, to a qualified farmer. P makes a section 1062 election pursuant to § 1.1062-2(b). However, P fails to attach a copy of the section 1062 covenant to P's return for the relevant taxable year. (ii) Analysis. Paragraph (o)(1)(ii) of this section requires a taxpayer to attach a copy of the section 1062 covenant to the taxpayer's return for the relevant taxable year in order for their real property to constitute qualified farmland property. Because P did not attach a section 1062 covenant to P's return for the relevant taxable year, Property Q is not qualified farmland property. (y) Applicability date. This section applies to qualified sales or exchanges occurring in taxable years ending after [date of publication of final regulations in the Federal Register ].