Compliance
Compliance Essentials for U.S. Lenders under New OBBB Rural Loan Interest Exclusion
New legislation allows lenders to exclude 25% of interest income from loans secured by rural/agricultural property—learn what counts as rural property, how to qualify, and what to do now to stay compliant.
By NomadicTax Research Team • 5 min read • November 24, 2025
## What It Is: Section 139L of the OBBB Act
On **November 20, 2025**, the U.S. Treasury and IRS issued interim guidance under Section 139L (Notice 2025-71) of the One, Big, Beautiful Bill (OBBB) which permits certain lenders to **exclude 25% of the interest income** earned from loans secured by **rural or agricultural real property**. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-tax-benefit-for-lenders-on-loans-secured-by-farm-or-rural-property-under-the-one-big-beautiful-bill?utm_source=openai))
This exclusion applies to lenders—it does **not affect borrowers’ deductions**—and is intended to support agricultural investment in rural areas.
## Key Definitions and Compliance Criteria
- **Rural or agricultural real property**: Property in rural areas or farmland that meet the definitions as laid out in the guidance. The notice details what areas qualify and what property types are eligible. Refinanced loans are also addressed. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-tax-benefit-for-lenders-on-loans-secured-by-farm-or-rural-property-under-the-one-big-beautiful-bill?utm_source=openai))
- **Exclusion amount**: 25% of the interest received, not the full interest. So if a lender receives $100,000 in interest from qualifying loans, $25,000 may be excluded from gross income.
- **When & how**: Interim guidance applies until proposed regulations are finalized. Lenders should follow the rules in Notice 2025-71. Comments are requested via Regulations.gov.
## Why It Matters: Impact & Examples
| Lender Type | Interest Income Received | Exclusion Amount |
|-------------|----------------------------|------------------|
| Small rural bank lending on farmland | $200,000 per year from qualifying loans | $50,000 excluded, taxable interest = $150,000 |
| Credit union with mixed loan portfolio | Only portion secured by eligible agricultural property qualifies | Only that portion is eligible for exclusion; mixed setting requires allocation calculation |
This exclusion can reduce taxable income, possibly lowering tax rate owed or pushing taxpayer into a lower bracket.
## Compliance Tips: Stay Safe in Transition
- **Maintain clear records** of property location, use, loan security documents, refinancings.
- Verify area is defined as rural or agricultural per IRS guidance.
- Monitor forthcoming regulations; interim guidance may change specifiers (e.g., area definitions or refinancings).
- Use separate accounting for mixed purpose loans.
## Example Scenario
Imagine *GreenGrowth Bank*, which in 2025 makes $120,000 interest from loaning to farmers on farmland. Under Section 139L, 25% ($30,000) of that interest may be excluded. For tax year 2025, though guidance is interim, GreenGrowth can rely on the notice—because the exclusion and definitions are now provided.
## Overall Takeaways for Lenders
- This policy offers **medium to high** financial impact for those dealing in agricultural property lending.
- It's **effective** immediately in terms of compliance guidance, although regulations are still forthcoming.
- Proper documentation, record-keeping, and monitoring upcoming changes will be critical.
Staying ahead of these requirements ensures eligible lenders minimize taxable income correctly and avoid potential audits or adjustments.