I 

108TH CONGRESS 

1ST SESSION H. R. 2978

To amend the Internal Revenue Code of 1986 to provide an exclusion for 

gain from the sale of farmland to encourage the continued use of the 

property for farming, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JULY 25, 2003

Mr. TERRY (for himself and Mr. POMEROY) introduced the following bill; 

which was referred to the Committee on Ways and Means 

A BILL

To amend the Internal Revenue Code of 1986 to provide 

an exclusion for gain from the sale of farmland to encourage the continued use of the property for farming, 

and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Beginning Farmers 

5 and Ranchers Tax Incentive Act of 2003’’. 
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1 SEC. 2. EXCLUSION OF GAIN FROM SALE OF CERTAIN 

2 FARMLAND. 

3 (a) IN GENERAL.—Part III of subchapter B of chap4 ter 1 of the Internal Revenue Code of 1986 (relating to 

5 items specifically excluded from gross income) is amended 

6 by adding after section 121 the following new section: 

7 ‘‘SEC. 121A. EXCLUSION OF GAIN FROM SALE OF QUALIFIED 

8 FARM PROPERTY. 

9 ‘‘(a) EXCLUSION.—In the case of a natural person, 

10 gross income shall not include—

11 ‘‘(1) 100 percent of the gain from the sale or 

12 exchange of qualified farm property to a first-time 

13 farmer (as defined in section 147(c)(2)(C) (deter14 mined without regard to clause (i)(II) thereof)) who 

15 certifies that the use of such property shall be as a 

16 farm for farming purposes for not less than 10 years 

17 after such sale or exchange, 

18 ‘‘(2) 50 percent of the gain from the sale or ex19 change of qualified farm property to any other per20 son who certifies that the use of such property shall 

21 be as a farm for farming purposes for not less than 

22 10 years after such sale or exchange, and 

23 ‘‘(3) 25 percent of the gain from the sale or ex24 change of qualified farm property to any other per25 son for any other use. 

26 ‘‘(b) LIMITATION ON AMOUNT OF EXCLUSION.—
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1 ‘‘(1) IN GENERAL.—The amount of gain ex2 cluded from gross income under subsection (a) with 

3 respect to any taxable year shall not exceed 

4 $500,000 ($250,000 in the case of a married indi5 vidual filing a separate return), reduced by the ag6 gregate amount of gain excluded under subsection 

7 (a) for all preceding taxable years. 

8 ‘‘(2) SPECIAL RULE FOR JOINT RETURNS.—The 

9 amount of the exclusion under subsection (a) on a 

10 joint return for any taxable year shall be allocated 

11 equally between the spouses for purposes of applying 

12 the limitation under paragraph (1) for any suc13 ceeding taxable year. 

14 ‘‘(c) QUALIFIED FARM PROPERTY.—

15 ‘‘(1) QUALIFIED FARM PROPERTY.—For pur16 poses of this section, the term ‘qualified farm prop17 erty’ means real property located in the United 

18 States if, during periods aggregating 3 years or 

19 more of the 5-year period ending on the date of the 

20 sale or exchange of such real property—

21 ‘‘(A) such real property was used as a 

22 farm for farming purposes by the taxpayer or 

23 a member of the family of the taxpayer, and 
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1 ‘‘(B) there was material participation by 

2 the taxpayer (or such a member) in the oper3 ation of the farm. 

4 ‘‘(2) DEFINITIONS.—For purposes of this sub5 section, the terms ‘member of the family’, ‘farm’, 

6 and ‘farming purposes’ have the respective meanings 

7 given such terms by paragraphs (2), (4), and (5) of 

8 section 2032A(e). 

9 ‘‘(3) SPECIAL RULES.—For purposes of this 

10 section, rules similar to the rules of paragraphs (4) 

11 and (5) of section 2032A(b) and paragraphs (3) and 

12 (6) of section 2032A(e) shall apply. 

13 ‘‘(d) OTHER RULES.—For purposes of this section, 

14 rules similar to the rules of subsection (e) and subsection 

15 (f) of section 121 shall apply. 

16 ‘‘(e) TREATMENT OF DISPOSITION OR CHANGE IN

17 USE OF PROPERTY.—

18 ‘‘(1) IN GENERAL.—If, as of the close of any 

19 taxable year, there is a recapture event with respect 

20 to any qualified farm property transferred to the 

21 taxpayer in a sale or exchange described in para22 graph (1) or (2) of subsection (a), then the tax of 

23 the taxpayer under this chapter for such taxable 

24 year shall be increased by an amount equal to the 

25 product of—
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1 ‘‘(A) the applicable recapture percentage, 

2 and 

3 ‘‘(B) 10 percent of the taxpayer’s adjusted 

4 basis in the property on the date such property 

5 was transferred to the taxpayer. 

6 ‘‘(2) APPLICABLE RECAPTURE PERCENTAGE.—

7 ‘‘(A) IN GENERAL.—For purposes of this 

8 subsection, the applicable recapture percentage 

9 shall be determined from the following table:

‘‘If the recapture event occurs in: The applicable recapture 

percentage is: 

Years 1 through 5 ..................................................... 100

Year 6 ........................................................................ 80

Year 7 ........................................................................ 60

Year 8 ........................................................................ 40

Year 9 ........................................................................ 20

Years 10 and thereafter ............................................ 0.

10 ‘‘(B) YEARS.—For purposes of subpara11 graph (A), year 1 shall begin on the date of the 

12 sale or exchange described in paragraph (1) or 

13 (2) of subsection (a). 

14 ‘‘(3) RECAPTURE EVENT DEFINED.—For pur15 poses of this subsection, the term ‘recapture event’ 

16 means—

17 ‘‘(A) CESSATION OF OPERATION.—The 

18 cessation of the operation of any property the 

19 sale or exchange of which to the taxpayer is de20 scribed in paragraph (1) or (2) of subsection 

21 (a) as a farm for farming purposes. 
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1 ‘‘(B) CHANGE IN OWNERSHIP.—

2 ‘‘(i) IN GENERAL.—Except as pro3 vided in clause (ii), the disposition of a 

4 taxpayer’s interest in any property the sale 

5 or exchange of which to the taxpayer is de6 scribed in paragraph (1) or (2) of sub7 section (a). 

8 ‘‘(ii) AGREEMENT TO ASSUME RECAP9 TURE LIABILITY.—Clause (i) shall not 

10 apply if the person acquiring such interest 

11 in the property agrees in writing to assume 

12 the recapture liability of the person dis13 posing of such interest in effect imme14 diately before such disposition. In the 

15 event of such an assumption, the person 

16 acquiring the interest in the property shall 

17 be treated as the taxpayer for purposes of 

18 assessing any recapture liability (computed 

19 as if there had been no change in owner20 ship). 

21 ‘‘(4) SPECIAL RULES.—

22 ‘‘(A) NO CREDITS AGAINST TAX.—Any in23 crease in tax under this subsection shall not be 

24 treated as a tax imposed by this chapter for 
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1 purposes of determining the amount of any 

2 credit under subpart A, B, or D of this part. 

3 ‘‘(B) NO RECAPTURE BY REASON OF

4 HARDSHIP.—The increase in tax under this 

5 subsection shall not apply to any disposition of 

6 property or cessation of the operation of any 

7 property as a farm for farming purposes by rea8 son of any hardship as determined by the Sec9 retary.’’. 

10 (b) CONFORMING AMENDMENT.—The table of sec11 tions for part III of subchapter B of chapter 1 of the In12 ternal Revenue Code of 1986 is amended by adding after 

13 the item relating to section 121 the following new item:

‘‘Sec. 121A. Exclusion of gain from sale of qualified farm property.’’.

14 (c) EFFECTIVE DATE.—The amendment made by 

15 this section shall apply to any sale or exchange on or after 

16 the date of the enactment of this Act, in taxable years 

17 ending after such date.

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