Exclusion of Interest on Loans Secured by Rural or Agricultural Real Property
Section 70435 · Sec. 70435 ·
What this chapter is about
This part lets a lender leave a quarter of certain interest out of income. The loan must be secured by farm, fishing or aquaculture land. Only banks, insurers and named bodies count as lenders. It reaches loans made after this law passed.
The document says “shall not”Who acts: Secretary of the TreasuryHow: statuteSec. 70435 in the PDF
What the document says
“Gross income shall not include 25 percent of the interest received by a qualified lender on any qualified real estate loan.”
The section adds a new section 139L to part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 leaving 25 percent of the interest a qualified lender receives on a qualified real estate loan out of gross income.
What the document actually says
“Gross income shall not include 25 percent of the interest received by a qualified lender on any qualified real estate loan.”
That sentence, in plain words
A quarter of the interest is left out of income. That is interest a lender takes in on a qualified loan.
What this is about
So the lender pays tax on the other three quarters. The next rules say who counts as a lender. They also say which loans count.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
“any bank or savings association the deposits of which are insured under the Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.),”
The section defines a qualified lender as a bank or savings association whose deposits are federally insured, a State or federally regulated insurance company, an entity wholly owned by a bank holding company for the purposes of section 8 of the International Banking Act of 1978 that is organized under United States or State law and based in the United States or a territory, an entity wholly owned by a State insurance holding company meeting the same two tests, and, for a loan secured by farm real estate, a federally chartered instrumentality established under section 8.1(a) of the Farm Credit Act of 1971.
What the document actually says
“any bank or savings association the deposits of which are insured under the Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.),”
That sentence, in plain words
A bank counts as a lender here. So does a savings body. Its deposits must be insured by the federal government.
What this is about
Regulated insurers count too. So do firms wholly owned by a bank or insurance parent. A farm credit body counts for farm land loans.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
“The term `qualified real estate loan' means any loan--”
The section defines a qualified real estate loan as one secured by rural or agricultural real estate or by a leasehold mortgage with lien status on such land, made to a person other than a specified foreign entity as defined in section 7701(a)(51), and made after enactment. Whether the security is rural or agricultural real estate is judged when the interest accrues. A loan is not treated as made after enactment so far as its proceeds refinance a loan made on or before that date, or in a chain of refinancings where the original loan was.
What the document actually says
“The term `qualified real estate loan' means any loan--”
That sentence, in plain words
The term covers a loan that meets the tests below.
What this is about
It must be secured by rural or farm land. It must not go to a named foreign body. It must be made after this law passed.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
“any real property which is substantially used for the production of one or more agricultural products,”
The section defines rural or agricultural real estate as real property substantially used to produce one or more agricultural products, real property substantially used in the trade or business of fishing or seafood processing, and any aquaculture facility, but not property outside a State or a possession of the United States. An aquaculture facility is any land, structure or appurtenance used for aquaculture, including a hatchery, rearing pond, raceway, pen or incubator.
What the document actually says
“any real property which is substantially used for the production of one or more agricultural products,”
That sentence, in plain words
Land counts if it is largely used to grow farm products.
What this is about
Land used for fishing or fish processing counts too. So does a fish farming site. Land outside the country does not count.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
The document says “shall”Who acts: Secretary of the TreasuryHow: statuteSec. 70435 in the PDF
What the document says
“In the case of any qualified real estate loan, section 265 shall be applied--”
The section applies section 265 of the Internal Revenue Code of 1986 to a qualified real estate loan by treating it as an obligation whose interest is wholly exempt, by reading 25 percent of the interest on indebtedness for interest on indebtedness, by treating 25 percent of the loan's adjusted basis as the basis of a tax-exempt obligation, and by reading 25 percent of the amount of the indebtedness for the amount of the indebtedness. The amendments apply to taxable years ending after enactment.
What the document actually says
“In the case of any qualified real estate loan, section 265 shall be applied--”
That sentence, in plain words
One rule in the tax code is read differently for these loans. The four changes that follow say how.
What this is about
That rule limits deductions tied to tax free income. Here only a quarter of the loan is treated that way. That matches the share left out of income.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
Each distinct thing the new section does: exclude 25 percent of the interest, define a qualified lender, define a qualified real estate loan with its refinancing rule, define rural or agricultural real estate and an aquaculture facility, and set the coordination with section 265 and the effective date.
The clerical amendment adding an item to a table of sections.
The section adds a section to the Internal Revenue Code of 1986 and points to the Federal Deposit Insurance Act, the International Banking Act of 1978, the Farm Credit Act of 1971 and section 265 of the Code, none of which is indexed here.
