Entity Setup

Farm & Rural Real Property Loans Under OBBB: Tax Benefit for Lenders Explained

New law under the OBBB Act allows lenders making loans secured by rural or agricultural property to exclude 25% of interest income—here’s how lenders can qualify and take advantage.

By NomadicTax Research Team • 5-8 min read • November 22, 2025

## The New Rural Real Property Loan Interest Exclusion Under section **139L** of the Internal Revenue Code, added by the One, Big, Beautiful Bill Act (OBBB, Public Law 119-21), certain lenders may **exclude 25% of interest income** from gross income if the loan is 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)) ### Key Definitions & Interim Guidance Notice 2025-71 interim guidance clarifies: - What qualifies as “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)) - What constitutes refinancing and how it works under the exclusion rules. ([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)) The IRS will rely on this interim guidance until proposed regulations are published. ## Benefits & Implications for Lenders ### Financial Impact - If you make a $100,000 loan secured by qualifying farmland, $25,000 of the interest income is excluded from your gross income—reducing taxable income and saving taxes on the excluded portion. ### Who Can Benefit - Lenders with portfolios including agricultural real estate: farmers, agriculture financing companies, banks in rural regions. - Deals where the real property collateral meets the definition set in the guidance. ## How to Qualify: Actionable Steps 1. **Check Property Qualification**: - Property must be agricultural real property or rural real property. - Look into land usage, farming operations, or production agriculture to meet “agricultural real property” standard. - “Rural” is as defined in the guidance, generally areas outside certain population thresholds. ([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)) 2. **Loan Structuring**: - Ensure the loan is properly secured by a lien on the property. - Refinance rules: if you refinance, the terms and usage must align with what qualifies under the interim rules. ([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)) 3. **Documentation & Compliance**: - Maintain clear collateral documents, appraisals, location, and usage records. - Retain records showing the property meets the “rural” or “agricultural” definition. - Track income, interest receipts, and loan payment schedules. 4. **Tax Filing Tips**: - Exclude 25% of interest income on your income return for qualifying loans. - If guidance changes with final regulations, be ready to adjust or claim based on that. - Consult tax counsel for portfolio classification. ## Example Scenario BankOnRural makes an $80,000 loan secured by farmland located in a designated agricultural property zone. For the tax year 2025, 25% of the interest ($2,000 of $8,000 total interest) can be excluded from gross income. Proper collateral documentation and verification that the land meets “agricultural real property” criteria are essential. ## Summary & Risks While the interim guidance offers clarity, the law is new. Risks include: - Potential revisions when final regulations are issued. - Misclassification of property or incorrect filings could trigger IRS audits. - Documentation lapses around “rural” definitions may harm eligibility. But for eligible lenders, this is a powerful opportunity to reduce taxable income and support agricultural financing.