I 

109TH CONGRESS 

2D SESSION H. R. 4854 

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. 

IN THE HOUSE OF REPRESENTATIVES 

MARCH 2, 2006 

Mr. LEWIS of Kentucky (for himself and Mr. OSBORNE) 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 exclude 

from gross income interest received on loans secured 

by agricultural real estate and rural housing. 

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 ‘‘Rural Communities 

5 Investment Act of 2006’’. 


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1 SEC. 2. EXCLUSION FOR INTEREST ON LOANS SECURED BY 

2 AGRICULTURAL REAL ESTATE AND RURAL 

3 HOUSING . 

4 (a) IN GENERAL.—Part III of subchapter B of chap5 ter 1 of the Internal Revenue Code of 1986 (relating to 

6 items specifically excluded from gross income) is amended 

7 by inserting after section 139A the following new section: 

8 ‘‘SEC. 139B. INTEREST ON LOANS SECURED BY AGRICUL9 TURAL REAL ESTATE AND RURAL HOUSING. 

10 ‘‘(a) EXCLUSION.—Gross income shall not include in11 terest received by a qualified lender on any qualified real 

12 estate loan. 

13 ‘‘(b) DEFINITIONS AND SPECIAL RULES.—For pur14 poses of this section— 

15 ‘‘(1) QUALIFIED LENDER.—The term ‘qualified 

16 lender’ means any bank or savings association the 

17 deposits of which are insured under the Federal De18 posit Insurance Act (12 U.S.C. 1811 et seq.). 

19 ‘‘(2) QUALIFIED REAL ESTATE LOAN.—The 

20 term ‘qualified real estate loan’ means— 

21 ‘‘(A) any indebtedness (including the refi22 nancing of indebtedness) secured by agricul23 tural real estate or by a leasehold mortgage 

24 (with a status as a lien) on agricultural real es25 tate, or 

26 ‘‘(B) any indebtedness— 


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1 ‘‘(i) acquired for the purpose of pur2 chasing or improving rural housing, and 

3 ‘‘(ii) secured by such rural housing or 

4 by a leasehold mortgage (with a status as 

5 a lien) on such rural housing. 

6 ‘‘(3) AGRICULTURAL REAL ESTATE.— 

7 ‘‘(A) IN GENERAL.—The term ‘agricultural 

8 real estate’ means real property used or avail9 able for the production of 1 or more agricul10 tural products. 

11 ‘‘(B) WHEN DETERMINATION MADE.—For 

12 purposes of subparagraph (A), the determina13 tion of whether property securing any indebted14 ness is agricultural real estate shall be made as 

15 of the time the interest income on such indebt16 edness accrues. 

17 ‘‘(4) RURAL HOUSING.— 

18 ‘‘(A) IN GENERAL.—The term ‘rural hous19 ing’ means any single family residence which is 

20 located in a rural area and which is the prin21 cipal residence (within the meaning of section 

22 121) of the borrower. 

23 ‘‘(B) WHEN DETERMINATION MADE.—The 

24 determination of whether property qualifies as 

25 rural housing with respect to any indebtedness 


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1 shall be made as of the date such indebtedness 

2 originates. 

3 ‘‘(5) RURAL AREA.—The term ‘rural area’ 

4 means an area (as determined by the Secretary of 

5 Agriculture) which is not within a metropolitan sta6 tistical area (as defined by the Office of Manage7 ment and Budget) and which has a population (de8 termined on the basis of the most recent decennial 

9 census for which date are available) of 2,500 or less. 

10 ‘‘(c) COORDINATION WITH SECTION 265.—For pur11 poses of this section, the rules of section 265 shall apply, 

12 as follows: 

13 ‘‘(1) IN GENERAL.—Qualified real estate loans 

14 shall be treated as an obligation described in section 

15 265(a)(2). 

16 ‘‘(2) PRO RATA ALLOCATION OF INTEREST EX17 PENSE OF FINANCIAL INSTITUTIONS TO TAX-EX18 EMPT INTEREST.—In applying section 265(b)— 

19 ‘‘(A) the term ‘tax-exempt obligation’, as 

20 defined in paragraph (4)(B) thereof, shall in21 clude a qualified real estate loan, 

22 ‘‘(B) the term ‘financial institution’, as de23 fined in paragraph (5) thereof, shall include a 

24 qualified lender, and 


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1 ‘‘(C) the term ‘qualified tax-exempt obliga2 tion’, as defined in paragraph (3)(B) thereof, 

3 shall include a qualified real estate loan made 

4 after December 31, 2005, to a qualified small 

5 borrower. 

6 For purposes of subparagraph (C), the term ‘quali7 fied small borrower’ means, with respect to qualified 

8 real estate loans received during any calendar year, 

9 any borrower if the reasonably anticipated amount 

10 of qualified real estate loans which will be received 

11 by such borrower during such calendar year does not 

12 exceed $10,000,000.’’. 

13 (b) CLERICAL AMENDMENT.—The table of sections 

14 for such part III is amended by inserting after the item 

15 relating to section 139A the following new item: 

‘‘Sec. 139B. Interest on loans secured by agricultural real estate and rural 

housing.’’. 

16 (c) EFFECTIVE DATE.—The amendments made by 

17 this section shall apply to taxable years beginning after 

18 the date of the enactment of this Act. 

Æ 


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