Farmers to See Very Little Benefit From New Bank Deduction

The OBBBB allows banks to deduct 25% of the interest you pay them. Don't expect a large reduction in your interest rate

Photo by POURIA 🦋 on Unsplash

The One Big Beautiful Bill has a new Code Section for banks that allows them to deduct 25% of the interest that they receive on certain rural or farm loans. However, since this is treated as non-taxable income to them, the interest that they pay for that portion of the loan is also non-deductible.

Therefore, the bank is really only getting a benefit on the net amount of interest that they earn related to your loan. The average gross interest margin for banks is around 3%. Let’s try to calculate the value of this new deduction to the bank.

Most banks are taxed as a C corporation with a flat tax rate of 21%. Let’s assume the average net state income tax rate is 4% for a net tax rate of 25%.