§139L — Title 26 Internal Revenue Code | U.S. Code

Summary

Certain lenders don't pay tax on 25 percent of the interest they earn on loans secured by rural or agricultural real estate. Qualified lenders include FDIC-insured banks and savings associations, state or federally regulated insurance companies, certain U.S.-based entities owned by bank or insurance holding companies, and, for farm-related real estate, a federally chartered Farm Credit instrumentality. The loan must be secured by real property substantially used to produce agricultural products, used in fishing or seafood processing, or used as an aquaculture facility. It must be made after this section was enacted (refinancing an older loan doesn't count) and the borrower can't be a specified foreign entity. Because part of the interest is tax-free, the lender's related interest deductions are trimmed by a matching 25 percent under the rules that apply to tax-exempt bonds.

Title 26, §139L

Internal Revenue Code — Source: USLM XML via OLRC

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

(b)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)).

(c)For purposes of this section—

(1)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.

(2)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)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.

(4)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)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) 11 So in original. Probably should be “(b)(6)(A)(ii)”. thereof.

Notes & Related Subsidiaries

Editorial Notes

References in Text

The Federal Deposit Insurance Act, referred to in subsec. (b)(1), is act Sept. 21, 1950, ch. 967, § 2, 64 Stat. 873, which is classified generally to chapter 16 (§ 1811 et seq.) of Title 12, Banks and Banking. For complete classification of this Act to the Code, see

Short Title

note set out under section 1811 of Title 12 and Tables. The date of the enactment of this section, referred to in subsec. (c)(1)(C), (2), is the date of enactment of Pub. L. 119–21, which was approved July 4, 2025.

Statutory Notes and Related Subsidiaries

Effective Date

Pub. L. 119–21, title VII, § 70435(c), July 4, 2025, 139 Stat. 247, provided that: “The

Amendments

made by this section [enacting this section] shall apply to taxable years ending after the date of the enactment of this Act [July 4, 2025].”

§139L Interest on Loans Secured by Rural or Agricultural Real Property