Compliance

New Tax Break for Lenders: Excluding 25% of Interest on Rural Property Loans

Lenders making loans secured by rural or agricultural real property now have guidance to exclude 25% of interest income—eligible definitions and refinancings clarified.

By NomadicTax Research Team • 5-8 min read • November 23, 2025

## Overview: What Section 139L Offers Lenders Under the One, Big, Beautiful Bill, section 139L provides that **25% of interest income from loans secured by rural or agricultural real property** can be excluded from gross income for eligible lenders. A substantial tax benefit, especially for smaller regional lenders.([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)) ## Who Qualifies & What the Interim Guidance Covers - **Lenders** who make **loans secured by rural or agricultural real property** (as defined by the guidance). Refinancings are addressed—if a loan is refinanced, there are rules on whether the refinanced portion maintains eligibility.([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 guidance is ‘interim’, meaning applicable until Treasury & IRS release proposed regulations.([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 & Standards - **Agricultural real property** includes land and improvement used for farming, livestock, crop production.** Rural real property** standards include location and population density 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)) - For refinanced loans: - If original loan qualified, refinancing may preserve exclusion on original principal under certain conditions. - Guidance clarifies terms to prevent abuse.([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)) ## Actionable Guidance for Lenders 1. **Review existing loan portfolios** to pinpoint loans secured by rural/agricultural real property. Identify loans that already qualify and those that might with adjustment. 2. **Documentation**: Make sure security interests, location, use, and population data are clearly documented to demonstrate property qualifies as rural/agricultural. 3. **When refinancing**, ensure new loan terms preserve eligibility (principal, security type). 4. **Comment on proposed regulations**: Treasury is requesting comments under regulation docket IRS-2025-0400. Stakeholders should participate.([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)) ## Example - A bank lends $1,000,000 to a farmer with land in a county under defined rural population limits. If secured properly, 25% of interest income (say $50,000 interest) means **$12,500 excluded** from taxable income. - When refinancing: if refinancing removes eligibility (e.g. changes collateral or location), those refinanced portions may lose exclusion. Must follow guidance.([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)) ## Why This Matters - **Encourages lending** in rural areas. Helps farm sectors access capital with favorable tax treatment. - **Supports agricultural economy**: lenders more willing to offer favorable terms. - **Federal income tax savings**: significant impact for small banks, credit unions, agricultural financing institutions. ## Takeaway If you’re a lender in agricultural or rural markets, this interim guidance gives you a tangible opportunity to reduce taxable interest income now. Align your loan documentation, ensure property definitions meet standards, act on refinancings carefully, and watch for final regulations.