Section 1062 vs a DST: Spread the Tax or Defer It

When the One Big Beautiful Bill Act was signed on July 4, 2025, it added a new section to the tax code, Internal Revenue Code Section 1062, aimed squarely at farmland sales. If you have been told there is “a new law that lets farmers spread out the tax when they sell,” this is it.

It is a real and useful tool. It is also frequently confused with full tax deferral, and it does something narrower than a lot of folks assume. This guide explains what Section 1062 actually does, where it helps, and how it compares to deferring the gain through a Delaware Statutory Trust.

What Section 1062 actually does

Under Section 1062, a qualifying farmland seller can elect to pay the federal income tax on the gain in four equal annual installments, with no interest charged on the deferred amounts. The first installment is due with the tax return for the year of the sale, and the remaining three come due with the next three returns.

To qualify, the main conditions are:

• The land must be in the United States and must have been used for farming for the ten years before the sale.
• The buyer must be a person who is actively engaged in farming.
• There must be a restrictive covenant requiring the land stay in farming use for ten years, and a copy of that agreement gets attached to both the seller’s and the buyer’s returns for the year of sale.
• The election is made on the return for the year of the sale.

The part that gets missed

Here is the sentence that matters most, and the one that gets lost in the excitement: Section 1062 does not reduce the tax you owe. It only spreads it across four years.

You still pay the full federal income tax on the gain. You just pay it in four interest free pieces instead of all at once. That is a genuine cash flow benefit, and for a farmer selling to a neighbor who will keep the ground in production, it can be exactly the right tool. But it is a spreading tool, not a deferral tool, and it comes with strings: the buyer has to be an active farmer and the land has to stay farmed for a decade.

How a Delaware Statutory Trust is different

A Delaware Statutory Trust takes a different road. Instead of spreading the tax over four years, a DST lets you defer the federal capital gains tax through a 1031 exchange for as long as you stay inside the rules, while moving your proceeds into professionally managed real estate with the potential for passive income.

• Section 1062 spreads the tax over four years. You still pay all of it. The buyer must be an active farmer and sign a ten year farming covenant.
• A Delaware Statutory Trust defers the tax under 1031 rules. You move out of active management and into a passive real estate position, and there is no requirement about who buys your land or what they do with it.

These are not competitors so much as different answers to different situations.

Side by side

What it does to the tax. Section 1062 spreads it over four interest free years. A Delaware Statutory Trust defers it under 1031 rules.

Do you still owe the full tax. Under Section 1062, yes, just paid over four years. Under a DST, it is deferred for as long as you stay in 1031 rules.

Who can buy your land. Section 1062 requires an active farmer. A DST has no requirement about your buyer.

Strings attached to the land. Section 1062 requires a ten year farming covenant. A DST has none.

What you hold afterward. Section 1062 leaves you with cash from the sale, paid over time. A DST leaves you with a beneficial interest in managed real estate and the potential for passive income.

Which one fits which seller

Section 1062 tends to fit a farmer selling to another active farmer who plans to keep the ground in production, who is fine paying the full tax but wants to ease the cash flow hit over four years, and who can live with the ten year farming covenant on the land.

A Delaware Statutory Trust tends to fit an owner who wants to defer the gain rather than just spread it, who is ready to step out of active management, who is selling to a buyer with no interest in farming the ground, or who wants the proceeds working in diversified real estate with the potential for passive income.

Plenty of sellers should have both options on the table and run the numbers with their CPA before deciding. If you want help thinking it through, let’s have a visit.