26 U.S.C. § 139L — Interest on loans secured by rural or agricultural real property

submitted 1 year ago by Pub. L. 119-21 to r/title-26-INTERNAL-REVENUE-CODE · 638 words · no verdicts yet

in plain englishAI-generated · not legal advice

Banks and certain other qualified lenders don't pay tax on one-quarter of the interest they earn on loans secured by rural or agricultural land made after this law took effect. The rule lists which lenders and which properties count, and adjusts a related tax formula to match.

This section gives lenders a partial tax break on interest from rural and farm real estate loans. (a) In general. A qualified lender does not count 25 percent of the interest it earns on a qualified real estate loan as taxable income. (b) Qualified lender. This includes: (1) FDIC-insured banks and savings associations; (2) state- or federally-regulated insurance companies; (3) entities wholly owned by a bank holding company, as long as the entity is set up under U.S. or state law and is based in the United States; (4) entities wholly owned by a state-recognized insurance holding company, meeting those same two conditions; and (5) for loans secured by certain farm real estate, federally chartered instrumentalities set up under the Farm Credit Act. (c) Qualified real estate loan. (1) This is a loan secured by rural or agricultural real estate (or a leasehold mortgage on it), made to someone other than a "specified foreign entity," and made after this section became law — refinancings of pre-existing loans do not count as newly made, even through a series of refinancings. Whether the property is rural or agricultural is judged at the time interest income accrues. (3) "Rural or agricultural real estate" means property substantially used for producing agricultural products, property substantially used for fishing or seafood processing, or an aquaculture facility — but only if the property is located in a U.S. state or territory. (4) An "aquaculture facility" is land, a structure, or other feature used for aquaculture, including hatcheries, rearing ponds, raceways, pens, or incubators. (d) Coordination with section 265. Because interest expenses tied to tax-exempt income normally cannot be deducted, this rule treats a qualified real estate loan the same way: the lender must apply that limiting rule as though the loan were fully tax-exempt, but scaled down to 25 percent — for the interest deduction limit, the basis calculation, and the debt-amount calculation.

the actual law source: uscode.house.gov ↗public domain

(a) In general

Gross income shall not include 25 percent of the interest received by a qualified lender on any qualified real estate loan.

(b) Qualified lender

For purposes of this section, the term “qualified lender” means—

(1)

any bank or savings association the deposits of which are insured under the Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.),

(2)

any State- or federally-regulated insurance company,

(3)

any entity wholly owned, directly or indirectly, by a company that is treated as a bank holding company for purposes of section 8 of the International Banking Act of 1978 (12 U.S.C. 3106) if—

(A)

such entity is organized, incorporated, or established under the laws of the United States or any State, and

(B)

the principal place of business of such entity is in the United States (including any territory of the United States),

(4)

any entity wholly owned, directly or indirectly, by a company that is considered an insurance holding company under the laws of any State if such entity satisfies the requirements described in subparagraphs (A) and (B) of paragraph (3), and

(5)

with respect to interest received on a qualified real estate loan secured by real estate described in subsection (c)(3)(A), any federally chartered instrumentality of the United States established under section 8.1(a) of the Farm Credit Act of 1971 (12 U.S.C. 2279aa–1(a)).

For purposes of this section—

(1) In general

The term “qualified real estate loan” means any loan—

(A)

secured by—

(i)

rural or agricultural real estate, or

(ii)

a leasehold mortgage (with a status as a lien) on rural or agricultural real estate,

(B)

made to a person other than a specified foreign entity (as defined in section 7701(a)(51)), and

(C)

made after the date of the enactment of this section.

For purposes of the preceding sentence, the determination of whether property securing such loan is rural or agricultural real estate shall be made as of the time the interest income on such loan is accrued.

(2) Refinancings

For purposes of subparagraphs (A) and (C) of paragraph (1), a loan shall not be treated as made after the date of the enactment of this section to the extent that the proceeds of such loan are used to refinance a loan which was made on or before the date of the enactment of this section (or, in the case of any series of refinancings, the original loan was made on or before such date).

(3) Rural or agricultural real estate

The term “rural or agricultural real estate” means—

(A)

any real property which is substantially used for the production of one or more agricultural products,

(B)

any real property which is substantially used in the trade or business of fishing or seafood processing, and

(C)

any aquaculture facility.

Such term shall not include any property which is not located in a State or a possession of the United States.

(4) Aquaculture facility

The term “aquaculture facility” means any land, structure, or other appurtenance that is used for aquaculture (including any hatchery, rearing pond, raceway, pen, or incubator).

(d) Coordination with section 265

In the case of any qualified real estate loan, section 265 shall be applied—

(1)

by treating any qualified real estate loan for purposes of subsection (a)(2) thereof as an obligation the interest on which is wholly exempt from the taxes imposed by this subtitle,

(2)

by substituting “25 percent of the interest on indebtedness” for “Interest on indebtedness” in such subsection (a)(2),

(3)

by treating 25 percent of the adjusted basis of any qualified real estate loan as adjusted basis of a tax-exempt obligation described in subsection (b)(4)(B) thereof, and

(4)

by substituting “25 percent of the amount of such indebtedness” for “the amount of such indebtedness” in subsection (b)(6)(A)(a)(ii) 1 thereof.

Source credit: (Added Pub. L. 119–21, title VII, § 70435(a), July 4, 2025, 139 Stat. 246.)

history & why it existsrecord from the source credit

2025Enacted · Pub. L. 119-21 · 139 Stat. 246

A history note hasn’t been published yet. The record shows enactment by Pub. L. 119-21 on 2025-07-04.

all 0 arguments · sorted by: best

no arguments yet — make the first case