To amend the Internal Revenue Code of 1986 to exclude from gross income interest received on loans secured by agricultural real estate and rural housing.

Summary: Rural Communities Investment Act of 2006 - Amends the Internal Revenue Code to exclude from gross income interest received by a bank or savings association insured under the Federal Deposit Insurance Act on a loan acquired to purchase or improve rural housing and secured by rural housing or by a leasehold mortgage on such housing. Defines "rural housing" as any single family principal residence located in a rural area.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Rural Communities Investment Act of 
2006''.

SEC. 2. EXCLUSION FOR INTEREST ON LOANS SECURED BY AGRICULTURAL REAL 
              ESTATE AND RURAL HOUSING .

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to items specifically excluded 
from gross income) is amended by inserting after section 139A the 
following new section:

``SEC. 139B. INTEREST ON LOANS SECURED BY AGRICULTURAL REAL ESTATE AND 
              RURAL HOUSING.

    ``(a) Exclusion.--Gross income shall not include interest received 
by a qualified lender on any qualified real estate loan.
    ``(b) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified lender.--The term `qualified lender' means 
        any bank or savings association the deposits of which are 
        insured under the Federal Deposit Insurance Act (12 U.S.C. 1811 
        et seq.).
            ``(2) Qualified real estate loan.--The term `qualified real 
        estate loan' means--
                    ``(A) any indebtedness (including the refinancing 
                of indebtedness) secured by agricultural real estate or 
                by a leasehold mortgage (with a status as a lien) on 
                agricultural real estate, or
                    ``(B) any indebtedness--
                            ``(i) acquired for the purpose of 
                        purchasing or improving rural housing, and
                            ``(ii) secured by such rural housing or by 
                        a leasehold mortgage (with a status as a lien) 
                        on such rural housing.
            ``(3) Agricultural real estate.--
                    ``(A) In general.--The term `agricultural real 
                estate' means real property used or available for the 
                production of 1 or more agricultural products.
                    ``(B) When determination made.--For purposes of 
                subparagraph (A), the determination of whether property 
                securing any indebtedness is agricultural real estate 
                shall be made as of the time the interest income on 
                such indebtedness accrues.
            ``(4) Rural housing.--
                    ``(A) In general.--The term `rural housing' means 
                any single family residence which is located in a rural 
                area and which is the principal residence (within the 
                meaning of section 121) of the borrower.
                    ``(B) When determination made.--The determination 
                of whether property qualifies as rural housing with 
                respect to any indebtedness shall be made as of the 
                date such indebtedness originates.
            ``(5) Rural area.--The term `rural area' means an area (as 
        determined by the Secretary of Agriculture) which is not within 
        a metropolitan statistical area (as defined by the Office of 
        Management and Budget) and which has a population (determined 
        on the basis of the most recent decennial census for which date 
        are available) of 2,500 or less.
    ``(c) Coordination With Section 265.--For purposes of this section, 
the rules of section 265 shall apply, as follows:
            ``(1) In general.--Qualified real estate loans shall be 
        treated as an obligation described in section 265(a)(2).
            ``(2) Pro rata allocation of interest expense of financial 
        institutions to tax-exempt interest.--In applying section 
        265(b)--
                    ``(A) the term `tax-exempt obligation', as defined 
                in paragraph (4)(B) thereof, shall include a qualified 
                real estate loan,
                    ``(B) the term `financial institution', as defined 
                in paragraph (5) thereof, shall include a qualified 
                lender, and
                    ``(C) the term `qualified tax-exempt obligation', 
                as defined in paragraph (3)(B) thereof, shall include a 
                qualified real estate loan made after December 31, 
                2005, to a qualified small borrower.
        For purposes of subparagraph (C), the term `qualified small 
        borrower' means, with respect to qualified real estate loans 
        received during any calendar year, any borrower if the 
        reasonably anticipated amount of qualified real estate loans 
        which will be received by such borrower during such calendar 
        year does not exceed $10,000,000.''.
    (b) Clerical Amendment.--The table of sections for such part III is 
amended by inserting after the item relating to section 139A the 
following new item:

``Sec. 139B. Interest on loans secured by agricultural real estate and 
                            rural housing.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.