I 

109TH CONGRESS 

1ST SESSION H. R. 2034

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 

APRIL 28, 2005

Mr. TERRY (for himself, Mr. POMEROY, Mr. PENCE, Mr. HINOJOSA, Mr. 

PAUL, Mr. TOWNS, Mr. BISHOP of Georgia, Mr. GRAVES, Mr. MARSHALL, Mr. SIMPSON, Mr. KIND, Mr. SCOTT of Georgia, Mr. KENNEDY

of Minnesota, Mr. BARTLETT of Maryland, Mr. MCHUGH, Mr. KING of 

Iowa, Mr. CANNON, and Mr. SOUDER) 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 Act of 2005’’. 
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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 who meets the certification requirement of 

14 subsection (d), 

15 ‘‘(2) 50 percent of the gain from the sale or ex16 change of qualified farm property to any other per17 son who meets the certification requirement of sub18 section (d), and 

19 ‘‘(3) 25 percent of the gain from the sale or ex20 change of qualified farm property to any other per21 son for any other use. 

22 ‘‘(b) LIMITATION ON AMOUNT OF EXCLUSION.—

23 ‘‘(1) IN GENERAL.—The amount of gain ex24 cluded from gross income under subsection (a) with 

25 respect to any taxable year shall not exceed 

26 $500,000 ($250,000 in the case of a married indi-
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1 vidual filing a separate return), reduced by the ag2 gregate amount of gain excluded under subsection 

3 (a) for all preceding taxable years. 

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

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

6 joint return for any taxable year shall be allocated 

7 equally between the spouses for purposes of applying 

8 the limitation under paragraph (1) for any suc9 ceeding taxable year. 

10 ‘‘(c) DEFINITIONS.—For purposes of this section— 

11 ‘‘(1) FIRST-TIME FARMER.—The term ‘first12 time farmer’ means a first-time farmer (as defined 

13 in section 147(c)(2)(C), determined without regard 

14 to clause (i)(II) thereof) who meets the requirements 

15 of section 147(c)(2)(B). For purposes of the pre16 ceding sentence, in applying clause (ii) of section 

17 147(c)(2)(B), the material and substantial participa18 tion standard shall be treated as met with respect to 

19 a qualified farm if the first-time farmer will— 

20 ‘‘(A) perform not less than 1,000 hours of 

21 service with respect to such farm, or 

22 ‘‘(B) provide half the required manage23 ment and labor with respect to such farm. 
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1 ‘‘(2) QUALIFIED FARM PROPERTY.—The term 

2 ‘qualified farm property’ means real property located 

3 in the United States if—

4 ‘‘(A) during periods aggregating 3 years or 

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

6 the sale or exchange of such real property, such 

7 real property was used as a farm for farming 

8 purposes by the taxpayer, the taxpayer’s 

9 spouse, or other member of the family of the 

10 taxpayer, and 

11 ‘‘(B) there was material participation by 

12 the taxpayer, the taxpayer’s spouse, or other 

13 member of the family of the taxpayer in the op14 eration of the farm during 3 years or more of 

15 the 5-year period ending on the earlier of—

16 ‘‘(i) the sale or exchange of such real 

17 property, or 

18 ‘‘(ii) the later of the retirement of the 

19 taxpayer or the taxpayer’s spouse who ma20 terially participated. 

21 ‘‘(3) OTHER DEFINITIONS.—The terms ‘mem22 ber of the family’, ‘farm’, ‘farming purposes’, and 

23 ‘material participation’ have the respective meanings 

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

25 (6) of section 2032A(e), respectively. 
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1 ‘‘(d) USE CERTIFICATION AS FARM FOR FARMING

2 PURPOSES.—The certification requirement of this sub3 section is a certification that the use of the qualified farm 

4 property referred to in subsection (a)(1) will be as a farm 

5 for farming purposes for not less than the 10-year period 

6 beginning on the date of the sale or exchange referred to 

7 in subsection (a)(1). 

8 ‘‘(e) SPECIAL RULES.—For purposes of this section, 

9 the following rules shall apply: 

10 ‘‘(1) Rules similar to the rules of subsections 

11 (e) and (f) of section 121. 

12 ‘‘(2) Rules similar to the rules of paragraphs 

13 (4) and (5) of section 2032A(b) and paragraph (3) 

14 of section 2032A(e). 

15 ‘‘(f) TREATMENT OF DISPOSITION OR CHANGE IN

16 USE OF PROPERTY.—

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

18 taxable year, there is a recapture event with respect 

19 to any qualified farm property transferred to the 

20 taxpayer in a sale or exchange described in para21 graph (1) or (2) of subsection (a), then the tax of 

22 the taxpayer under this chapter for such taxable 

23 year shall be increased by an amount equal to the 

24 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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