Blog Post | 114 KY. L. J. ONLINE | September 26, 2025
Sowing Tax Incentives: How Farmers Can Harvest Tax Benefits in Response to Codified Changes
By: Mitchell Barber, Staff Editor, Vol. 114
Tax Day, the accountant’s Super Bowl and the taxpayer’s boogeyman, has recently become less daunting for the farmer looking to sell his or her farmland. Section 1062 of the “One Big Beautiful Bill Act (the “OBBBA”) provides an election that allows farmers selling their land to other farmers to defer payment of capital gains taxes in four equal installments over four years.[1] As America’s farming population continues to age, Section 1062 of the OBBBA provides a tax deferral system that ensures farmland remains used for agricultural purposes and eases the tax burden farmers have historically faced.
According to the most recent United States Department of Agriculture (USDA) Census of Agriculture released in 2022, farmers are, on average, fifty-eight years old.[2] In 2021, data from the Bureau of Labor Statistics determined that “farmers, ranchers, and other agricultural managers” represented the oldest workforce in the country, with roughly one-third of the workforce being aged sixty-five years or older.[3] Alongside the aging population of farmers in America, “95% of farms in the United States are family-owned.”[4] Historically, these farms would be passed down within families, however, the amount of young people entering the farming workforce has not kept up with the rapidly aging farming population.[5] Specifically, “enrollment in agriculture-based college programs dropped by nearly 37% from 1980 to 1990 and, in some regions, the share of students studying farming remains small.”[6] Given the rapidly aging farming workforce, and a lack of young individuals interested in their family farms, it is likely that much of the farmland in America will be sold rather than inherited. Section 1062 of the OBBBA provides tax incentives to farmers looking to sell to ensure that the land will continue to be used for primarily agricultural purposes.[7]
To qualify for the tax deferral, the seller must confirm that the “land is subject to a covenant or other legally enforceable restriction which prohibits the use of the property other than as a farm for farming purposes for 10 years after the date of the sale or exchange.”[8] Additionally, the land must be “qualified farmland property” sold to a “qualified farmer.”[9] “Qualified farmland property” is defined as real property in the United States that has been “used by a taxpayer as a farm for farming purposes” or has been “leased by the taxpayer to a qualified farmer for farming purposes.”[10] A “qualified farmer” is defined as “any individual who is actively engaged in farming.”[11]
Given the stringent statutory requirements a seller must satisfy in order to qualify for the deferral election, it is obvious that Congress intended that the farmland remain used for agricultural purposes after a sale. From a USDA study in 2016, “roughly eighty-seven percent of food and beverage purchases by U.S. consumers, were from domestic production.”[12] The statutory requirements to qualify for the election provide a safeguard that the United States will have the production capacity to continue to produce a large majority of its own food.
The tax benefits to farmers who follow the statutory obligations for the election are engineered to relieve the financial consequences of paying large capital gains taxes at one time. Capital gains taxes are enforced when “a business – including a family farm or ranch – sells a long-term capital asset, such as land.”[13] The tax is calculated by the difference of the sale amount and the adjusted basis of the asset.[14] Large capital gains tax payments have significant impacts for farmers in particular, because eighty-two percent of total farm sector assets are forecasted to be illiquid real estate assets in 2025.[15] The seller of farmland may elect to “pay their taxes on the gain of the sale of farmland in four equal installments.”[16] Sellers may be individuals, trusts, or other entities.[17] These equal installments may be spread out over four consecutive years, allowing flexibility in the payment of large capital gains taxes.[18] Given that many farmers and sellers are tied up in illiquid assets that are often not conducive to alleviating large tax bills, Section 1062 of the OBBBA provides practical cash flow solutions for farmers.
Section 1062 of the OBBBA will help ensure that farmland continues to be used for agricultural purposes and help even the financial playing field between farmers and other buyers through deferred capital gains tax incentives. Additionally, Section 1062 of the OBBA will help farmers that have historically faced liquidity issues be able to effectively sell their farmland and guarantee that the land remains in use for agricultural purposes.
[1] 26 U.S.C. § 1062.
[2] U. S. DEP’T OF AGRIC., 2022 CENSUS OF AGRICULTURE – STATE DATA, tbl. 52 (2022), https://www.nass.usda.gov/Publications/AgCensus/2022/Full_Report/Volume_1,_Chapter_1_State_Level/Kentucky/st21_1_052_052.pdf.
[3] Samuel Stebbins, Grant Suneson & Douglas A. McIntyre, These Are the Jobs with the Oldest Workforces in the United States, from Farmers to Shuttle Drivers, USA Today (Oct. 26, 2021, 10:00 AM ET), https://www.usatoday.com/story/news/nation/2021/10/26/these-jobs-have-oldest-workforce-country/6166671001/.
[4] Karissa Waddick, Half of Farmers Are over Retirement Age. Is Our Food System at Risk?, USA Today (Aug. 15, 2025, 12:14 PM ET), https://www.usatoday.com/story/news/nation/2025/08/12/farmers-aging-rapidly-is-food-at-risk/85577304007/.
[5] Id.
[6] Id.
[7] See Kristine A. Tidgren, One Big Beautiful Bill Act Implements Significant Tax Package, Iowa State Univ. Ctr. for Agric. L. and Tax’n (July 9, 2025), https://www.calt.iastate.edu/post/one-big-beautiful-bill-act-implements-significant-tax-package.
[8] Id.
[9] 26 U.S.C. § 1062.
[10] Id.
[11] Id.
[12] Michelle Saksena, Close to 90 Percent of U.S. Consumers’ Food and Beverage Spending Is for Domestically Produced Products, U. S. Dep’t. Agric. Econ. Rsch. Serv. (May 18, 2018), https://www.ers.usda.gov/data-products/charts-of-note/chart-detail?chartId=88950#:~:text=Close%20to%2090%20percent%20of%20U.S.%20consumers%27,domestically%20produced%20products%20%7C%20Economic%20Research%20Service.
[13] Agriculture and Tax Reform, Am. Farm Bureau Fed’n, https://www.fb.org/issue/tax-reform (last visited Sep. 13, 2025).
[14] Id.
[15] Farm Sector Income & Finances: Assets, Debt, and Wealth, U. S. Dep’t. Agric. Econ. Rsch. Serv (Sep. 3, 2025), https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/assets-debt-and-wealth.
[16] Adam J. Kantrovich, H.R. 1, One Big Beautiful Bill Act (OBBBA) Tax Update Affecting Farms and Ranches, Utah State Rural Tax Educ. (Aug. 2025), https://extension.usu.edu/ruraltax/tax-topics/OBBBA.
[17] Id.
[18] 26 U.S.C. § 1062.