Sale of a Farm

If you sell your farm, you can’t adjust the basis of the land at the time of the sale for any unused carryover of soil and water conservation expenses (except for deductions of assessments for depreciable property, discussed earlier). However, if you acquire another farm and return to the business of farming, you can start taking deductions again for the unused carryovers.

Gain on sale of farmland. If you held the land 5 years or less before you sold it, gain on the

sale of the land is treated as ordinary income up to the amount you previously deducted for soil and water conservation expenses. If you held the land less than 10 but more than 5 years, the gain is treated as ordinary income up to a specified percentage of the previous deductions. See Section 1252 property under Other Gains in chapter 9.

Treatment of capital gains from the sale of certain farmland property. Public Law 119-21, section 70437, added provisions which generally allow deferred payments of net income tax from the sale or exchange of qualified farmland to a qualified farmer. Effective for tax years beginning after July 4, 2025, eligible sellers may elect to pay the income tax liability from the sale in four equal installments. See Form 1062 and its instructions.