Quick take: Owning farmland in the United States has become an increasingly popular diversification strategy for Non-Resident Indians (NRIs). While federal law generally allows foreigners to own agricultural land (see our legal guide), the tax rules are complex and can significantly affect returns. This guide explains everything NRIs need to know about US taxation on farmland in 2026 — Section 871(d), FIRPTA, and the $60,000 estate-tax trap.
1. How the IRS Treats NRI Owners of US Farmland
Most NRIs are classified as Nonresident Aliens (NRAs) for US tax purposes (unless they hold a green card or meet the substantial presence test).
Key principles:
- The US taxes NRAs only on US-source income
- Income from US real property (including farmland) is always US-source
- Special rules apply under the Foreign Investment in Real Property Tax Act (FIRPTA) and Section 871 of the Internal Revenue Code
2. Taxation of Rental or Farming Income
Default Treatment
Rental income from farmland is generally taxed at a flat 30% on the gross amount (no deductions allowed).
Better Option: Section 871(d) Election
NRIs can elect to treat income from US real property as Effectively Connected Income (ECI). Benefits include:
- Ability to deduct expenses (property taxes, maintenance, insurance, interest, depreciation, management fees, etc.)
- Net income taxed at regular graduated rates (same brackets used by US residents)
- Applies to rents, crop shares, and certain other income from the land
This election is highly recommended for most farmland owners.
3. Capital Gains Tax When Selling Farmland (FIRPTA)
When an NRI sells US farmland:
- The gain is treated as effectively connected income and is taxable in the US
- The buyer must withhold 15% of the total sales price (not just the profit) under FIRPTA
- The NRI must file Form 1040-NR to report the actual gain and claim a refund if excess tax was withheld
- Long-term capital gains rates (0%, 15%, or 20%) may apply if the land was held for more than one year
Tip: Apply for a withholding certificate (Form 8288-B) before closing if you expect the actual tax to be lower than 15%.
4. Estate Tax — The Biggest Hidden Risk
This is the most overlooked issue for NRI farmland owners:
| Category | Estate Tax Exemption (2026) | Tax Rate on Excess |
|---|---|---|
| US Citizens / Residents | Very high (tens of millions) | Up to 40% |
| Nonresident Aliens (NRIs) | Only $60,000 | Up to 40% |
Direct ownership of US farmland is fully subject to US estate tax. Without proper planning, heirs could face a large tax bill. Many NRIs use carefully structured entities to reduce this exposure.
5. Other Important Tax Considerations
- State Taxes: Many farming states impose income tax and may require withholding on sales.
- Depreciation: Available if the Section 871(d) election is made or income is ECI.
- Filing Requirements: Form 1040-NR is usually required.
- AFIDA Reporting: Separate USDA disclosure is mandatory for foreign owners of agricultural land (this is not a tax form but is legally required). See our legal guide.
- India Tax Side: Income may also need to be reported in India, with foreign tax credit available under the India-US tax treaty in certain cases. See our NRI Taxation India pillar.
6. Smart Structuring Options for NRIs
| Ownership Structure | Income Tax Impact | Estate Tax Risk | Complexity |
|---|---|---|---|
| Direct Personal Ownership | Simple, 871(d) election possible | High | Low |
| US LLC | Flexible | Still high | Medium |
| Foreign Corporation | Higher corporate taxes | Can be reduced | High |
The right structure depends on the size of the investment, how long you plan to hold the land, and your succession goals.
Final Advice for NRI Farmland Investors
- Always make the Section 871(d) election if you have rental or farming income.
- Plan for FIRPTA withholding well before selling.
- Address estate tax exposure early — the $60,000 exemption is extremely low.
- Work with a US CPA or tax attorney experienced with foreign agricultural investors.
- Coordinate with your Indian tax advisor for dual reporting and foreign tax credits.
US farmland can be a strong long-term asset for NRIs, but the tax rules reward careful planning and penalize those who ignore them.
Related NRI Investment & Tax Guides
- NRI US Farmland — Legal Ownership Guide (AFIDA + State Restrictions)
- NRI Taxation India — NRE/NRO/DTAA/FBAR Complete Pillar
- NRI Investment India — Mutual Funds, Property, FD
- NRI Tax Impacts of High Fuel Costs 2026
- Sending Money to India — Wise/Remitly/Xoom Comparison
Disclaimer: This article is for informational purposes only and reflects general rules as of September 2026. Tax laws change and individual circumstances vary. Always consult qualified US and Indian tax professionals before making investment decisions.