StructuredSales.org
StructuredSales.org
East River sales are often corn and soybean ground around Brookings or Moody County, with basis from an old deed or a parent's death. West River sales are grass, a headquarters, and sometimes the cattle. Sioux Falls shows up as heirs who left for the Twin Cities, and as families who have heard that a South Dakota trust can take care of the tax. The state income-tax piece of all of that is zero. South Dakota taxes neither individual nor corporate income. The federal piece, on a lump-sum closing, is often the 20% long-term rate plus the 3.8% net investment income tax.
A structured installment sale under IRC §453 is how a South Dakota seller spreads that federal stack. For a couple whose other income is a pension and Social Security, part of each year's gain can land in the 0% long-term band, which a single-year sale uses up once. Farm property also sits outside the section 453A interest charge that applies to very large non-farm deferrals. None of that is a guaranteed dollar saving. It is the reason the schedule belongs in the conversation with the auctioneer, not after the clerk's sheet is signed.
The Tax Foundation's 2026 profile lists no individual income tax, no corporate income tax, and no estate or inheritance tax. South Dakota and Wyoming are the two states that pair the absence of both income taxes with the absence of a statewide gross-receipts tax. There is still a real estate transfer fee. SDCL 43-4-21 charges the grantor 50 cents for each $500 of value or fraction. On a $2 million deed that is $2,000, paid because title transfers. It does not scale with how many years you take to recognize gain. SDCL 43-4-22 exempts a list of transfers, among them some parent-child deeds for only nominal consideration, absolute gifts, and certain fiduciary transfers. A sale to a nephew at full price is not on that list. A certificate of real estate value goes with most deeds. It is a reporting form, not an income tax.
Property tax is the cost of holding the ground, and it ends for the seller at closing. Tangible property that moves on a bill of sale can raise a sales-tax question separate from income tax. Ask the closer which assets are on the deed.
Revenue Procedure 2025-32 sets the 2026 joint 0% long-term band at taxable income up to $98,900, the 15% band through $613,700, and 20% above that. The joint standard deduction is $32,200, plus $1,650 for each spouse who is 65 or older. NIIT of 3.8% applies once MAGI exceeds $250,000 on a joint return, to the lesser of that excess or net investment income. A retired couple with $80,000 of pension and taxable Social Security has taxable income, after the age-adjusted standard deduction, below $98,900. The next dollars of long-term gain are at 0% until taxable income reaches that line, then at 15% until $613,700. A $2 million gain in one year blows through both lines. The same gain at $200,000 a year can reuse the 0% sliver every year and never touch 20%.
The structure is the usual one. The contract calls for payments after the year of sale. At closing the buyer — often a neighboring operator or an institutional land buyer who will not carry a personal note — pays the deferred portion to an assignment company. The seller does not receive it. A rated carrier's annuity funds the schedule. Form 6252 splits each payment into basis, gain, and ordinary interest. Compare that with a 1031 into more land if the family wants to keep owning acres, and with the farmland tax guide for allocation among land, tile, grain systems, and machinery. Inherited basis is covered in selling inherited farmland.
Section 453A(b)(3) excludes installment obligations from the sale of property used or produced in the trade or business of farming from the interest charge that otherwise applies above $5 million. Cropland and a working ranch can qualify. A Main Street business sold the same year does not ride that exception. Confirm the farming definition against the actual assets, not the auction headline.
Both spouses are 66. Other AGI is $80,000 of pension and the already-taxable part of Social Security, treated as outside net investment income. The standard deduction is $32,200 plus $3,300, or $35,500. Taxable income before the sale is $44,500, which leaves $54,400 of room in the 0% band ($98,900 minus $44,500). They sell cropland. Machinery recapture is ordinary income in the year of sale under section 453(i) on either path and is left out of the table. Long-term gain on the land is $2,400,000, recognized at once or as $240,000 a year for ten years. Brackets and other income stay flat. The table ignores ordinary interest on the payments and ignores any extra Social Security that a lump-sum year can pull into AGI. Both omissions make the lump sum look milder than a full return would.
| 2026 federal estimate | Lump sum | Each of 10 years | Ten years combined |
|---|---|---|---|
| Long-term gain recognized | $2,400,000 | $240,000 | $2,400,000 |
| Gain at 0% | $54,400 | $54,400 | $544,000 |
| Gain at 15% | $514,800 | $185,600 | $1,856,000 |
| Gain at 20% | $1,830,800 | $0 | $0 |
| Long-term capital gains tax | $443,380 | $27,840 | $278,400 |
| NIIT at 3.8% | $84,740 | $2,660 | $26,600 |
| Estimated federal tax on this gain | $528,120 | $30,500 | $305,000 |
On these assumptions the federal tax on the same gain is about $223,120 lower when spread, before time value and before tax on interest. The lump sum puts $1,830,800 into the 20% band. The installment never gets there, because each year's taxable income is $284,500. Lump-sum NIIT is 3.8% of $2,230,000 (MAGI of $2,480,000 minus $250,000). An installment year has MAGI of $320,000, so NIIT touches $70,000. South Dakota adds no income tax. The transfer fee is a rounding error next to either column and is paid at the deed either way. Run the land gain through the calculator, then add machinery recapture by hand.
A child who still lives in Minnesota and sells South Dakota ground is a Minnesota resident. Minnesota taxes residents on all income. It also taxes nonresidents on Minnesota-source income, which the Department of Revenue describes as including income from property or a business in Minnesota. Statute section 290.17 assigns a nonresident's nonbusiness income from tangible property to the state where the property sits. Farmland in Minnesota can therefore stay on a Minnesota return after a move to Sioux Falls. Farmland in South Dakota does not become Minnesota-source merely because the seller used to live there, but payments received while the seller is still a Minnesota resident are taxed because of residency. Illinois allocates a nonresident's capital gain on Illinois real property, including mineral interests treated as real property, to Illinois. The Minnesota and Illinois guides cover the resident-year rates. So do North Dakota, Nebraska, Iowa, Montana, and Wyoming for land that sits there. California, Oregon, New York, and New Jersey do the same kind of sourcing for property left behind.
South Dakota is a frequent situs for long-duration trusts because the state does not tax income. That does not move the seller's federal gain. A transfer of appreciated land into a trust can be a gift, or it can leave the gain taxed to the grantor. A later sale is still a federal sale. Holding for a basis step-up is a different plan, and the absence of a state estate tax does not repeal the federal one.
Machinery recapture is year-of-sale ordinary income. Section 453(e) can accelerate gain if a related buyer, often a child, resells within two years. Section 453(g) generally denies installment treatment on depreciable property sold to a related person. The income side of a long schedule is in turning a sale into retirement income.
South Dakota has no individual income tax and no corporate income tax. A farmland seller does not add a state income-tax rate to the gain. Federal long-term capital gains tax and the 3.8% net investment income tax still apply. The state also has no estate or inheritance tax. A real estate transfer fee is due from the grantor when title passes.
SDCL 43-4-21 imposes 50 cents per $500 of value, or fraction, on the privilege of transferring title. The grantor pays it. That is $1 per $1,000 of value, due when title transfers, not as installment payments arrive. SDCL 43-4-22 lists exemptions, including some transfers between parent and child for nominal consideration and transfers that are absolute gifts. Read the list before assuming a family deed is free.
Section 453A's interest charge on deferred tax applies when installment obligations outstanding at year-end exceed $5 million. Obligations arising from the sale of property used or produced in the trade or business of farming are excluded from that definition. A quarter of cropland or a ranch that meets the farming definition can fall outside the charge. A sale of equipment is still subject to depreciation recapture in the year of sale, and a non-farm business sold in the same year is tested on its own.
If you are a Minnesota resident when you receive a payment, Minnesota taxes that income. Minnesota also taxes nonresidents on income from Minnesota sources, including property and businesses in Minnesota. Gain on farmland located in Minnesota can remain Minnesota-source after you leave. Gain on South Dakota land is a different question and depends on your residency when the payment is recognized. Illinois similarly allocates a nonresident's gain on Illinois real property to Illinois. Confirm the former state's rule before you rely on a move.
No. South Dakota is a common place to sit a long-duration trust because the state has no income tax, but a trust's tax home and the seller's personal gain are different questions. Transferring appreciated land to a trust can be a gift, a sale, or a non-event depending on the instrument. It does not, by itself, erase federal capital gains tax on a later sale. Basis step-up at death is a separate decision.
Last reviewed: October 22, 2026. The farming exception in section 453A is statutory; whether a given parcel meets the definition of property used or produced in farming is a facts question.
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