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 as a farm for substantially all of the ten year period ending on the date of the sale.
• The buyer must be a qualified farmer, meaning an individual actively engaged in farming under the federal definition.
• There must be a restrictive covenant prohibiting any non farming use of the land for the ten years after the sale.
• The election is made on IRS Form 1062, filed with your return for the year of the sale, no later than that return’s due date.

When you can actually use it

This is the part most coverage skips. The election applies to sales in tax years beginning after July 4, 2025, the date the One Big Beautiful Bill Act became law. For a calendar year taxpayer, that means the first year you can make the election is generally the 2026 tax year. A farm sold in 2025 by a calendar year filer does not qualify. The IRS issued Notice 2026-3 with estimated tax relief tied to the election. As with anything this new, confirm your own timing and eligibility with your CPA before you count on it.

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. The key distinction is what gets deferred: Section 1062 defers the payment over four years, but you still recognize the whole gain in the year you sell. A 1031 exchange into a DST defers the gain itself. And Section 1062 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

	Section 1062 election	Delaware Statutory Trust
What it does to the tax	Spreads the payment over four interest free years	Defers the gain under 1031 rules
Do you still owe the full tax	Yes, just paid over four years	Deferred for as long as you stay in 1031 rules
Who can buy your land	A qualified, actively engaged farmer	No requirement about your buyer
Strings attached to the land	A ten year farming covenant	None
What you hold afterward	The cash from your sale, tax paid over four years	A beneficial interest in managed real estate, with potential passive income
When you can use it	Sales in tax years beginning after July 4, 2025 (generally 2026 for calendar year filers)	Available now under existing 1031 law

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.

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Sources: Internal Revenue Code Section 1062, added by the One Big Beautiful Bill Act (Public Law 119-21, July 4, 2025); IRS Form 1062 and instructions; IRS Notice 2026-3; Iowa State University Center for Agricultural Law and Taxation. This is general education, not tax advice. Confirm your eligibility and timing with your own CPA.