IRC §139L Interest Exclusion for Rural and Agricultural Real Estate Loans

IRC §139L Interest Exclusion for Rural and Agricultural Real Estate Loans

IRC §139L provides a 25% exclusion from gross income for interest received by qualified lenders on loans secured by rural or agricultural real property. Congress enacted this provision to stimulate agricultural and rural credit markets by increasing the lender’s after tax yield and improving loan availability and pricing for farmers, ranchers, aquaculture operators, and rural borrowers. Interim guidance under Notice 2025-71 outlines qualification standards, documentation requirements, modification rules, and safe harbors for property use and valuation.

Key Tax Impacts

• Qualified lenders may exclude 25% of interest income from qualified real estate loans secured by rural or agricultural property.
• Loans must be originated after July 4, 2025, made to a non foreign borrower, and supported by appropriate security and valuation documentation.
• Property must be substantially used for agricultural production, fishing, seafood processing, or aquaculture operations.
• Notice 2025-71 provides rules for refinancings, significant modifications, valuation standards, and reliance procedures for lenders.
• Mixed use property requires substantiation that agricultural activity represents substantial use.
• Lenders must review modification events carefully to preserve the exclusion under Reg. §1.1001-3.

Schedule a Consultation to evaluate whether a loan structure or borrower profile may qualify for the §139L interest exclusion and how this incentive may influence pricing and availability for agricultural or rural lending.

For taxpayers in agriculture, aquaculture, and fishing industries, the §139L framework may support broader access to capital and more favorable borrowing terms as lenders begin incorporating the exclusion into their underwriting models.

See current federal rates on the Economic Dashboard: Economic Dashboard .