SEC. 2. CERTAIN GAINS AND OTHER INCOME RELATED TO 
USE OF FARMLAND BY BEGINNING FARMERS 
EXCLUDED FROM GROSS INCOME. 
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 is amended 
by inserting after section 139L the following new section: 
‘‘SEC. 139M. CERTAIN GAINS AND OTHER INCOME RELATED 
TO USE OF FARMLAND BY BEGINNING FARM-
ERS. 
‘‘(a) CAPITAL GAINS.— 
‘‘(1) IN GENERAL.—Gross income shall not in-
clude 40 percent of the gain from the sale or ex-
change of qualifying farmland held for more than 1 
year if such farmland is transferred to a beginning 
farmer in such sale or exchange. 
‘‘(2) LIMITATION.—The aggregate amount of 
gain excluded under paragraph (1) with respect to 
any taxpayer for any taxable year shall not exceed 
the excess (if any) of— 
‘‘(A) $1,500,000, over 
‘‘(B) the aggregate amount of gain ex-
cluded under paragraph (1) with respect to 
such taxpayer for the 4 preceding taxable years. 
‘‘(b) APPLICATION TO LEASES AND CROP-SHARE AR-
RANGEMENTS.— 
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‘‘(1) IN GENERAL.—Gross income shall not in-
clude income from the lease or rental of qualifying 
farmland to a beginning farmer if the term of such 
lease or rental agreement is for a period not exceed-
ing 10 years. 
‘‘(2) LIMITATION.—The amount excluded under 
paragraph (1) by any taxpayer for any taxable year 
shall not exceed $25,000. 
‘‘(c) QUALIFYING FARMLAND.— 
‘‘(1) IN GENERAL.—The term ‘qualifying farm-
land’ means property— 
‘‘(A) used as a farm for farming purposes 
(within 
the 
meaning 
of 
section 
2032A(b)(2)(A)), and 
‘‘(B) with respect to which, during the 8- 
year period ending on the date of the sale or ex-
change described in subsection (a)(1) (or, for 
purposes of subsection (b)(1), the date of the 
lease or rental), there have been periods aggre-
gating 5 years or more during which— 
‘‘(i) such real property was owned by 
the taxpayer, a member of the taxpayer’s 
family, or the taxpayer’s revocable grantor 
trust, and used in the operation of a farm, 
and 
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‘‘(ii) there was material participation 
by the taxpayer or a member of the tax-
payer’s family in the operation of the farm. 
‘‘(2) MEMBER OF THE FAMILY.—For purposes 
of this subsection, the term ‘member of the family’ 
has the same meaning given such term in section 
409(p)(4)(D). 
‘‘(3) SPECIAL RULES.—For purposes of para-
graph (1)(B)— 
‘‘(A) TAXPAYERS WHO ARE RETIRED OR 
DISABLED.—Rules similar to the rules of sub-
paragraphs (A) and (B) of section 2032A(b)(4) 
shall apply. 
‘‘(B) SURVIVING SPOUSES.—Rules similar 
to the rules of section 2032A(b)(5) shall apply. 
‘‘(d) BEGINNING FARMER.—For purposes of this sec-
tion— 
‘‘(1) IN GENERAL.—The term ‘beginning farm-
er’ means any individual who— 
‘‘(A) is a citizen of the United States, and 
‘‘(B) is certified by the Secretary of Agri-
culture (the Secretary, in the case of clause (i)) 
to satisfy one of the following requirements: 
‘‘(i) Without regard to any taxable 
year beginning before such individual at-
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tained age 18, such individual had income 
or loss properly reported on Schedule F for 
not less than 1 and not more than 10 tax-
able years. 
‘‘(ii) Such individual is approved for a 
beginner farmer loan through the Farm 
Service Agency Beginning Farmer direct 
or guaranteed loan program. 
‘‘(iii) Such individual has substantial 
farming knowledge and is the principal op-
erator of a farm that constitutes new pro-
duction agriculture. 
‘‘(iv) Such individual is related within 
the fourth degree by blood, marriage, or 
adoption to the taxpayer from whom the 
farmland referred to in subsection (a) or 
(b) is acquired, leased, or rented. 
‘‘(2) APPLICATION TO BUSINESS ENTITIES.— 
The term ‘beginning farmer’ shall include any cor-
poration or partnership if more than 50 percent of 
the equity interests in such corporation or partner-
ship are held (directly or indirectly) by one or more 
individuals described in paragraph (1). 
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‘‘(e) AGGREGATION RULES.—Rules similar to the 
rules of section 194(b)(2) shall apply for purposes of sub-
sections (a)(2) and (b)(2) of this section. 
‘‘(f) RECAPTURE.— 
‘‘(1) IN GENERAL.—If any amount is excluded 
from the gross income of the taxpayer with respect 
to the sale or exchange of qualifying farm land and 
such qualifying farmland ceases to be used as a 
farm for farming purposes (within the meaning of 
section 2032A(b)(2)(A)) during the 5-year period 
beginning on the date of such sale or exchange, the 
tax imposed under this subtitle on such taxpayer for 
the taxable year which includes the date of such ces-
sation shall be increased by the applicable percent-
age of the taxpayer’s tax benefit with respect to such 
sale or exchange. 
‘‘(2) APPLICABLE PERCENTAGE.—For purposes 
of this subsection, the term ‘applicable percentage’ 
means— 
‘‘(A) 100 percent in the case of the first 
year of the 5-year period referred to in para-
graph (1), 
‘‘(B) 80 percent in the case of the second 
year of such period, 
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‘‘(C) 60 percent in the case of the third 
year of such period, 
‘‘(D) 40 percent in the case of the fourth 
year of such period, and 
‘‘(E) 20 percent in the case of the fifth 
year of such period. 
‘‘(3) TAX BENEFIT.—For purposes of this sub-
section, the term ‘tax benefit’ means, with respect to 
any sale or exchange, the excess of— 
‘‘(A) the tax imposed under this subtitle 
for the taxpayer’s taxable year which includes 
the date of such sale or exchange, determined 
without regard to this section, over 
‘‘(B) such tax determined after the appli-
cation of this section.’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for part III of subchapter B of chapter 1 of such Code 
is amended by inserting after the item relating to section 
139I the following new item: 
‘‘Sec. 139M. Certain gains and other income related to use of farmland by be-
ginning farmers.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
(d) ANNUAL REPORTS
TO CONGRESS.—The Sec-
retary of the Treasury, or the Secretary’s delegate, shall 
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annually submit to Congress a written report reviewing 
the costs and benefits and containing statistical informa-
tion regarding the exclusion of income under section 139M 
of the Internal Revenue Code of 1986 (as added by this 
section). Such report shall include the total amount of in-
come excluded under such section, and the total number 
of taxpayers excluding such income, for the taxable years 
covered by such report. 
Æ 
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