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Tax Benefits for Lenders & Investors in Rural America: Opportunity Zones & Section 139L
Recent IRS guidance under OBBB provides new incentives for lenders on agricultural property and enhanced rules for investors in rural Opportunity Zones.
By NomadicTax Research Team • 5-8 min read • November 21, 2025
## Background
The One, Big, Beautiful Bill (OBBB) introduced two notable provisions aimed at stimulating investment in **rural America**:
1. **Section 139L**: lenders can exclude part of their interest income from certain loans secured by rural or agricultural real property.
2. **Opportunity Zone modifications**: reduced thresholds for “substantial improvement” in rural areas, and a clearer definition of what qualifies as rural. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
## What the New Guidance Says
- **Section 139L interim guidance (Notice 2025-71)** allows lenders to exclude **25% of interest** received on loans secured by **rural or agricultural real property**. Defines “rural” and rules for refinancings. Available immediately while proposed regulations are finalized. ([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))
- **Opportunity Zones in rural areas**: OBBB defines a rural area as any area other than a city or town with a population >50,000, or an urbanized area adjacent to such a city. In zones comprised entirely of a rural area, the “substantial improvement” threshold drops from 100% to 50%. Applies for improvements on or after July 4, 2025. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill?utm_source=openai))
## Who Can Benefit
- **Lenders** making loans secured by agricultural or rural real property—these include banks, farm credit associations, or private lenders—can reduce their taxable income on a portion of the interest received. Knowing whether the property qualifies under the “rural” definition is key. Example: a lender who provides a $100,000 loan secured by rural farmland could exclude $25,000 of interest income under sec. 139L, significantly reducing their taxable income.
- **Real estate investors** targeting Opportunity Zones in rural areas: with the threshold for what counts as substantial improvement lowered, developers can enhance existing property at lower cost yet still qualify for favorable Opportunity Zone tax benefits. This boosts the financial practicality of many rural development projects.
## Practical Steps for Lenders & Investors
- **Verify whether property is rural**: check population data and urbanized area adjacency per IRS guidance. For Opportunity Zones, confirm if the zone is “entirely rural”. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill?utm_source=openai))
- **Track improvement costs early**: in a rural Opportunity Zone, improvements equal to at least 50% of the original cost basis now suffice—but only if work starts after July 4, 2025. • Maintain documentation of cost basis, improvement expenditures.
- **For lenders using Section 139L**: set up accounting systems to separate loans secured by qualified rural/agricultural property; document refinancings so you don’t lose the exclusion. Submit comments to IRS when proposed rules are drafted to clarify gray areas. ([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 Scenario
A small lender issues a $200,000 loan secured by rural farmland. Under Section 139L, **25% of the interest** they receive—say interest is $10,000—allows exclusion of $2,500 from gross income. Over many loans, this can meaningfully lower tax liability.
Meanwhile, a developer building 60% improved housing on rural land in an Opportunity Zone only needs to ensure improvements exceed 50% of the basis to qualify—reducing upfront cost compared to the prior 100% threshold.
## Conclusion
These incentives are structured to mobilize financing and investment in under-served rural America. Lenders and investors who understand and act on these rules can enjoy tangible tax benefits. As always, consult with tax advisors familiar with OBBB proposed regulations to align projects and finance strategies accordingly.
**Author**: NomadicTax Research Team