Qualifying Farm Real Estate Loans May See a Lower Interest Rate (or Rebate)
Banks making qualifying loans after July 4, 2025, get a tax break and they may pass it onto you
Farmers and rural businesses often face high borrowing costs that can limit growth and investment. Recognizing this, Congress enacted section 139L of the Internal Revenue Code in July 2025 as part of the One Big Beautiful Bill Act (OBBBA).
This new provision offers a targeted tax benefit to banks and other qualified lenders making loans secured by rural or agricultural real property. Here’s how section 139L works, how it interacts with interest expense deductions, and how it can translate into real savings for farmers.
What Does Section 139L Do?
Section 139L allows a “qualified lender” to exclude 25% of the interest income received on a “qualified real estate loan” from gross income for federal tax purposes. However, to prevent a double tax benefit, section 139L(d) coordinates with section 265 of the Code: 25% of the interest expense incurred to fund such loans is non-deductible. In other words, while 25% of the interest income is tax-free, the lender must also forgo the deduction for 25% of the related interest expense.
