Case Studies

Relief for Farmland Sales: How the Section 1062 Estimated Tax Waiver Impacts Farmers

Farmers eligible under Section 1062 can now take advantage of IRS relief for estimated tax penalties on qualified farmland sales—understand the conditions, how to elect, and benefits.

By NomadicTax Research Team • 5-8 min read • February 27, 2026

## Overview: Section 1062 Election and Estimated Tax Penalties Section 1062 of the Internal Revenue Code allows a taxpayer who sells or exchanges **qualified farmland** to **qualified farmers** to defer payment of some federal tax liability over four years. Normally, estimated tax penalties (under §§ 6654 and 6655) apply when income tax isn’t paid in sufficient installments. Notice 2026-3 provides relief for those penalties tied to the portion of tax deferred under Section 1062. ([irs.gov](https://www.irs.gov/irb/2026-02_IRB?utm_source=openai)) ## What the Waiver Covers - Under **Notice 2026-3**, the IRS will **waive penalties** for underpayment of estimated tax tied to the deferred portion of net tax liability under a properly made Section 1062 election. That means **75% of that applicable net tax liability** can be excluded from required annual payments for the year of the sale or exchange. ([irs.gov](https://www.irs.gov/irb/2026-02_IRB?utm_source=openai)) - Taxpayers **must still pay at least 25%** of the net tax liability by the due date of the return for that taxable year. ([irs.gov](https://www.irs.gov/irb/2026-02_IRB?utm_source=openai)) ## Who Qualifies - Taxpayers who make a **proper election under Section 1062**, covering the sale or exchange of **qualified farmland** to **qualified farmers**. The election must meet all statutory requirements. ([irs.gov](https://www.irs.gov/forms-pubs/the-irs-provides-estimated-tax-penalty-relief-for-farmland-sales-under-section-1062?utm_source=openai)) - Farmers making such sales in **2025 or 2026** should review timelines—both elections and estimated tax payments must align with these years. Note: the taxable year of the qualified sale or exchange is central. ## How to Use the Relief - If you expect to make a sale of qualified farmland, plan ahead: identify whether the buyer meets “qualified farmer” status, ensure your farmland is “qualified”, and prepare to make the election. - Calculate your usual estimated tax payments for that year. Then adjust them to reflect that **only 25%** of the net tax liability needs to be paid by return due date; for determining underpayment, you may **exclude the 75% deferred portion**. - File your return; if you’ve already reported penalties, or received notice of addition to tax under §§ 6654 or 6655, you can request abatement using **Form 843** and refer to “Notice 2026-3”. ([irs.gov](https://www.irs.gov/irb/2026-02_IRB?utm_source=openai)) ## Example Imagine you're a qualified farmer, selling 1,000 acres of bona fide qualified farmland in 2025 to another qualified farmer. Suppose the net tax from that transaction (after deductions but before the election) is \$100,000: under the Section 1062 election, **\$75,000** can be deferred. Rather than base your estimated tax installments on the full \$100,000, you calculate required payments as though \$25,000 is due in the current year. That lowers or avoids penalties under §§ 6654/6655. If, however, you missed estimating properly and penalties were assessed, but you did everything right with the election, you may still file **Form 843** to claim abatement per Notice 2026-3. ## Strategic Implications & Considerations - If you have a high-value farmland sale coming up, the relief can significantly reduce cash flow burdens and penalty risks. - Consult your tax advisor early—election timing, state laws related to farmland, and buyer qualifications must be verified. - This is relief for *penalties*, not for the tax itself; the deferred portion still becomes payable under the statutory phased-in schedule guaranteed by Section 1062. ## Bottom Line For eligible farmers, the Section 1062 election together with Notice 2026-3 provides meaningful relief from estimated tax penalties tied to large farmland sales. With proper planning and compliance, it can bridge cash flow gaps and keep you penalty-free for deferred tax liability.