Small Block

Capital Deployment Opportunity · Tax credits and incentives

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

Definition

Section 139L lets a qualified lender, such as an FDIC-insured bank or a regulated insurance company, exclude 25 percent of the interest it receives on a qualified real estate loan from its gross income.[1] A qualified loan is one made after July 4, 2025, secured by real estate substantially used for agricultural production, fishing or seafood processing, or aquaculture.[1]

Federal law

  1. One Big Beautiful Bill Act (popular name), Pub. L. 119-21, § 70435, 139 Stat. 245 (26 U.S.C. § 139L). Added 26 U.S.C. § 139L, the 25 percent interest exclusion, for taxable years ending after July 4, 2025. Official text: govinfo.gov, U.S. Government Publishing Office.

How it works

Congress added section 139L in section 70435 of Public Law 119-21: "Gross income shall not include 25 percent of the interest received by a qualified lender on any qualified real estate loan."[1]

Qualified lenders are banks and savings associations "the deposits of which are insured under the Federal Deposit Insurance Act," "any State- or federally-regulated insurance company," certain wholly owned U.S. affiliates of bank and insurance holding companies, and, for farm-production property only, the federally chartered instrumentality established under the Farm Credit Act of 1971.[1]

The loan must be secured by the property (or a leasehold mortgage on it), made to a person other than a specified foreign entity, and "made after the date of the enactment of this section," July 4, 2025. A refinancing of an older loan does not count as a new loan.[1]

What "rural or agricultural" means here

Despite the word "rural" in its name, the section does not use a population test. It defines the property by use: real property "substantially used for the production of one or more agricultural products," real property "substantially used in the trade or business of fishing or seafood processing," and "any aquaculture facility."[1]

That makes it one more federal line that does not match the others. A farm at the edge of a large city can secure a qualified loan, while a storefront in a town of 2,000 cannot. Whether property qualifies is tested when the interest accrues, so a change in use can change the answer over the life of the loan.