What Is the Section 1062 Election?
Section 1062 is part of the One, Big, Beautiful Bill Act (Public Law 119-21). It allows taxpayers who sell or exchange qualified farmland property to a qualified farmer to defer payment of the tax associated with that sale or exchange, paying over four years instead of all at once. Notice 2026-3 from the IRS provides relief for addition-to-tax penalties under sections 6654 and 6655, which typically penalize underpayments of estimated income tax. (eitc.irs.gov)
Actionable Steps to Qualify for the Relief
If you're a farmland owner, here’s what you need to do:
- Check eligibility: Your sale or exchange must be for qualified farmland property, and you must make the Section 1062 election properly. (irs.gov)
- Make the election on time: Without a valid Section 1062 election, the IRS won't apply Relief. Require filing of tax return with the election under Section 1062(a). (eitc.irs.gov)
- Estimated tax payments: Typically, you’d need to pay quarterly estimated tax under sections 6654/6655. Under the election, the IRS waives part of penalties attributable to the deferred portion. Pays only required minimum (e.g., 25% of net tax liability due with regular return filing) instead of full amount early. (eitc.irs.gov)
- If you’ve already filed and paid penalties: File Form 843, Claim for Refund and Request for Abatement, noting "Abatement requested pursuant to Notice 2026-3". (eitc.irs.gov)
Examples to Clarify
| Scenario | Without Section 1062 | With Section 1062 Election & Notice 2026-3 Relief |
|---|---|---|
| Farmer A sells farmland for $500,000; tax liability is $100,000 but chooses to defer $60,000 via Section 1062. | All estimated tax penalties apply unless $100,000 in estimated payments are made throughout year. | Penalties on deferred $60,000 portion are waived, only required payments on $40,000 apply until return due date. |
| Farmer B already paid full amount estimated to avoid penalties but still got penalty notice. | No relief without election—penalties stay. | File Form 843 to abate penalties under Notice 2026-3. |
Implications & Considerations
- This relief is automatic if eligible and no underpayment is self-reported. (eitc.irs.gov)
- Inflation can affect qualified thresholds (income, deduction limits), stay current. The standard deduction and other amounts rose for 2026 under the OBBB. (irs.gov)
- Be diligent about records: documentation of the sale, election filings, schedule of payments. If audited, having complete paper trail matters.
Bottom Line
If you qualify for Section 1062, making the election can meaningfully reduce or eliminate estimated tax penalties tied to a farmland sale. Review eligibility, ensure deadline compliance, and consider how this affects your broader tax planning.