Tax Benefit for Agricultural and Rural Lending

Written by Emma Keeter

The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, contains numerous tax provisions (H.R.1 - 119th Congress, 2025). Specifically, Section 70435 of the OBBBA introduces a federal tax incentive designed to encourage lending to agricultural and rural sectors by allowing qualifying lenders to exclude 25% of certain interest income from their federal taxable income. 

This exclusion applies only to interest earned on “qualifying loans.” To qualify, a loan must be secured by farm or rural real property at the time the interest accrues. The nature of the collateral is critical. The property must be primarily used for agricultural or rural purposes. Some examples would be if the property is substantially used to produce one or more agricultural products, used in the trade or business of fishing or seafood processing, or associated with an aquaculture facility. It is important to note that qualification is determined by the use of the property securing the loan, not by how the loan proceeds themselves are used. This distinction narrows the scope of the provision while also emphasizing Congress’s intent to link the tax benefit directly to rural land-based economic activity. 

Timing also plays a significant role. Only loans made on or after July 4, 2025, are eligible for the exclusion. The provision specifically limits the benefit in the context of refinancing. A loan will not be treated as newly made after that date if its proceeds are used to refinance a loan that originated before July 4, 2025. This prevents lenders from simply restructuring existing debt to obtain the tax advantage. Thus, preserving the incentive for new capital growth rather than retroactive tax planning.

Eligibility is limited to “qualified lenders,” which include U.S. banks and savings associations, insurance companies, and Farm Credit System institutions. While lenders may exclude 25% of the interest income, they are still required to include the remaining 75% in their federal taxable income. This means the tax provision only reduces their taxes but does not eliminate them completely. Another key factor is that the lender does not need to be the original holder of the loan. This allows secondary market participants to benefit as well.

Overall, Section 70435 has meaningful implications for industries who lend money. By reducing the effective tax burden on interest income tied to rural real property, the provision creates an incentive to increase lending to agricultural and rural borrowers. This can improve access to credit, lower borrowing costs, and support economic activity in sectors that are often sensitive to capital availability, while also maintaining clear boundaries to prevent over-board application.

Moving forward, we strongly encourage you to do further research while confirming your eligibility for this tax benefit. If you have any questions or need clarification, we are always here to help. So, feel free to contact us for guidance.

References

IRS Notice 2025-71