A bill to amend the Internal Revenue Code of 1986 to exclude from gross income capital gains from the sale of certain farmland property which are reinvested in individual retirement plans.
This bill would create a new tax provision (Section 139J) allowing a partial exclusion from gross income for capital gains realized on the sale or exchange of certain farmland, but only to the extent the gains are reinvested in an individual retirement account (IRA) within 60 days of the sale. The exclusion is limited to the amount that equals the total contributions the taxpayer makes to an IRA during that 60-day window. The provision defines who qualifies as “qualified farmland property” and who qualifies as a “qualified farmer” and includes a 10-year post-sale clawback: if the farmer disposes of the land or stops farming within 10 years, a new tax is due on the amount previously excluded, calculated at top capital gains rates plus the Medicare NIIT, plus interest. The bill also expands the IRA contribution framework (via Section 408) to allow an increased contribution limit during the 60-day period by the amount of the gain reinvested (subject to the same 60-day clock). An irrevocable election and a signed agreement are required to claim the exclusion. The measure is intended to incentivize retirement saving while facilitating farm transfers, but it imposes potential future tax if the land is not held for the stated period or reused as farming property.
Key Points
- 1New exclusion: Gains from the sale or exchange of qualified farmland property to a qualified farmer can be excluded from gross income to the extent the excluded gain does not exceed the aggregate amount contributed to an IRA within the 60 days after the sale.
- 2Qualified farmland property and qualified farmer:
- 3- Qualified farmland property is US real property that the seller used as a farm (or leased for farming) for substantially all of the 10 years ending on the sale date.
- 4- A qualified farmer is an individual actively engaged in farming (per defined federal farming activity standards) and who sign an agreement designating them as the recipient for the purposes of this section.
- 510-year clawback and penalties: If the qualified farmer disposes of any interest in the land or stops using it for farming within 10 years, an additional tax is due for the year of disposition or cessation. The tax equals the excluded amount times the sum of the top capital gains rate and the NIIT rate, plus interest on that amount for prior years.
- 6Partial dispositions: If only part of the farmland is disposed of or only part ceases to be farmed, the exclusion is reduced proportionally.
- 7Election mechanics: The exclusion requires an irrevocable election filed in a form prescribed by the Secretary, accompanied by a signed agreement from the qualified farmer confirming the amount to be treated as contributed for purposes of the exclusion.
- 8No double benefit: The rule disallows a deduction under §219 for any portion of the qualified retirement contributions that are funded by the excluded amount.
- 9IRA contribution limit adjustment: The bill adds a new subsection to Section 408 (r) to raise the deemed limit for contributions of qualified farmland gain. The increased limit equals the lesser of (a) the total gain from the sale to a qualified farmer during the 60 days before and after the tax year, or (b) the amount actually contributed to IRAs in that 60-day period.
- 10Effective date: The changes apply to sales or exchanges in taxable years beginning after enactment.