Key insights
- A new provision — Section 139L — lets qualified rural and agricultural lenders exclude 25% of interest income from tax, boosting incentives for lending in these areas.
- New interim guidance clarifies who qualifies, how loans must be secured and valued, and allows the exclusion to apply to later holders of eligible loans.
- Lenders get flexibility in compliance and valuation, with a 90-day cure period for issues; more rules are expected as the IRS seeks public input.
There’s now guidance on a new significant tax benefit for lenders in the agricultural sector.
Section 139L — established as part of the One Big Beautiful Bill Act — encourages financing for rural and agricultural development, supporting farmers, producers, and rural communities. Now, the U.S. Department of the Treasury and the IRS have released interim Section 139L guidance.
Explore the rules and learn how you might benefit.
Explore how the new deduction can impact your lending strategy.
What is Section 139L?
Section 139L allows qualified lenders to exclude 25% of the interest received on qualified real estate loans from gross income. This partial exclusion is designed to incentivize lending to rural and agricultural businesses, supporting growth and investment in these vital sectors.
Who is a qualified lender?
Qualified lenders include:
- Banks and savings associations with federally insured deposits
- Federal- or state-regulated insurance companies
- Entities owned by bank or insurance holding companies, organized and operating in the United States
- Federally chartered instrumentalities established under the Farm Credit Act, specifically for loans secured by agricultural property in a state or possession of the United States
What is a qualified real estate loan?
A qualified real estate loan is any loan (or leasehold mortgage with lien status) secured by rural or agricultural real estate, and originated after July 4, 2025. The property must be substantially used for agricultural production, fishing, seafood processing, or aquaculture.
Loans used to refinance pre-enactment loans (originated before July 4, 2025) generally don’t qualify, except for the portion exceeding the original balance.
Interim Section 139L guidance highlights
- Interest exclusion — Qualified lenders exclude 25% of interest income from qualified loans each taxable year.
- No origination requirement — Lenders need not be the original loan holders to benefit; subsequent qualified holders also qualify.
- Loan security — Only the portion of a loan up to the fair market value of the secured property qualifies. A safe harbor allows full qualification if the property’s value is at least 80% of the loan amount. The loan must be secured by rural or agricultural property located in a state or possession of the United States.
- Valuation methods — Lenders may use commercially reasonable methods, including consideration of income from agricultural activities and the value of secured personal property (e.g., equipment, livestock).
- Ongoing qualification — Loans retain qualified status unless the property ceases to meet requirements, with a 90-day window to cure deficiencies.
- Mixed use and seasonality — Properties with residences or seasonal non-use can still qualify if agricultural use is substantial; minimal or incidental agricultural activity doesn’t qualify.
Public comments sought
Notice 2025-71 invites comments on a range of interpretive issues, including the meaning of “substantially used,” the treatment of mixed-use properties, and the application of Section 139L in securitization structures. Comments are due by January 20, 2026.
How CLA can help with Section 139L
CLA’s financial services professionals can help you evaluate the implications of Section 139L and develop strategies to implement this guidance effectively. We will continue to provide timely updates as the Treasury and IRS issue additional guidance so you can stay informed and prepared.
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