The Treasury Department and the IRS released interim guidance Nov. 20 on a new tax benefit for certain lenders, such as FDIC-insured banks, that provide loans secured by rural or agricultural real estate.
Notice 2025-71 provides interim guidance that taxpayers can use until the Treasury Department and the IRS issue forthcoming proposed regulations.
The One Big Beautiful Bill Act, the tax-and-spending bill that President Donald Trump signed into law on July 4, added Section 139L to the Internal Revenue Code, which allows qualified lenders to exclude 25% of interest income earned on eligible rural and agricultural real estate loans from federal taxable income.
According to Notice 2025-71, lenders eligible for the tax break include:
- Any bank or savings association the deposits of which are insured under the Federal Deposit Insurance Act;
- Any state- or federally regulated insurance company;
- 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 if such entity is organized, incorporated, or established under the laws of the United States or any state, and the principal place of business of such entity is in the United States (including any territory of the United States);
- 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 is organized, incorporated, or established under the laws of the United States or any state, and the principal place of business of such entity is in the United States (including any territory of the United States); and
- With respect to interest received on a qualified real estate loan secured by real property which is substantially used for the production of one or more agricultural products, any federally chartered instrumentality of the United States established under Section 8.1(a) of the Farm Credit Act of 1971.
The interim guidance defines key terms from Section 139L, establishes standards for determining whether a loan is secured by rural or agricultural property, and provides rules regarding refinancings.
A qualified real estate loan is defined as “any loan secured by rural or agricultural real estate, or a leasehold mortgage (with a status as a lien) on rural or agricultural real estate; made to a person other than a specified foreign entity (as defined in § 7701(a)(51)); and made after the date of the enactment of § 139L (July 4, 2025). The determination of whether a property securing a loan is rural or agricultural real estate must be made as of the time the interest income on such loan is accrued.”
Rural or agricultural real estate is defined as “any real property which is substantially used for the production of one or more agricultural products; any real property which is substantially used in the trade or business of fishing or seafood processing; and any aquaculture facility. Such term does not include any property which is not located in a state or a possession of the United States.”
According to a brief from top 40 accounting firm The Bonadio Group, qualified loans must meet the following criteria:
- Originated after July 4, 2025 (refinanced loans don’t qualify).
- Made to a U.S. borrower (not a specified foreign entity).
- Secured by qualifying real estate or a leasehold mortgage with lien status.
Interested parties are requested to submit comments about the notice to assist in the drafting of the forthcoming proposed regulations. Comments may be submitted through www.regulations.gov (type IRS-2025-0400 in the search field) or by mail to Internal Revenue Service, CC:PA:01:PR (Notice 2025-71) Room 5503, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
Photo credit: gregobagel/iStock
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