The One Big, Beautiful Bill Act (the Act) contained a couple of provisions related to agricultural and rural real property. The provisions provide tax breaks for loans to purchase agricultural and rural real estate and the ability to pay tax on gains from the sale of certain farmland in installments.
For qualified lenders lending money to finance qualified agricultural and rural real estate, the Act allows 25% of the interest income to be excluded from the lender’s gross income. The loan must be a new loan rather than a refinanced loan to qualify for the exclusion. Qualified property includes any property used to produce agricultural products, fishing or seafood processing, or any aquaculture facilities. The provision interacts with Section 265 by treating 25 percent of the adjusted basis of the qualified real estate loan as a tax-exempt obligation. Thus, 25% of any interest deduction on indebtedness incurred to purchase or continue to operate the qualified real estate loan cannot be deducted. The exclusion becomes effective for tax years after July 4, 2025.
The Act added Section 1062, “Gain From the Sale or Exchange of Qualified Farmland Property to Qualified Farmers,” to the Internal Revenue Code. Under this section, taxpayers incurring a taxable gain on the sale of qualified farmland property to a qualified farmer, can elect to pay the tax on the gain in four equal installments. The election and first installment are due by the due date of the original tax return without extension. Each subsequent installment is due by the tax return due date of the following year without extension. For partnerships and S corporations, this election is made at the partner and shareholder level, respectively. Since many farm returns file by March 1, there should not be an issue with meeting this timeline, but passthroughs should bear in mind that the election is made at the partner/shareholder level. Failure to comply with the installment timeline will incur additional tax and an acceleration of payments. This provision becomes effective for sales or exchanges in tax years after July 4, 2025.
The Act sparked a number of changes that have an impact on the agricultural and rural tax environment. Stay up to date on the changes using our 2025 Tax Bill Guide. For more guidance, reach out to a member of the Forvis Mazars team here.