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. MAR-
SHALL, 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 en-
courage the continued use of the property for farming, 
and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Beginning Farmers 
and Ranchers Act of 2005’’.
SEC. 2. EXCLUSION OF GAIN FROM SALE OF CERTAIN 
FARMLAND. 
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
items specifically excluded from gross income) is amended 
by adding after section 121 the following new section: 
‘‘SEC. 121A. EXCLUSION OF GAIN FROM SALE OF QUALIFIED 
FARM PROPERTY. 
‘‘(a) EXCLUSION.—In the case of a natural person, 
gross income shall not include—
‘‘(1) 100 percent of the gain from the sale or 
exchange of qualified farm property to a first-time 
farmer who meets the certification requirement of 
subsection (d), 
‘‘(2) 50 percent of the gain from the sale or ex-
change of qualified farm property to any other per-
son who meets the certification requirement of sub-
section (d), and 
‘‘(3) 25 percent of the gain from the sale or ex-
change of qualified farm property to any other per-
son for any other use. 
‘‘(b) LIMITATION ON AMOUNT OF EXCLUSION.—
‘‘(1) IN GENERAL.—The amount of gain ex-
cluded from gross income under subsection (a) with 
respect to any taxable year shall not exceed 
$500,000 ($250,000 in the case of a married indi-
vidual filing a separate return), reduced by the ag-
gregate amount of gain excluded under subsection 
(a) for all preceding taxable years. 
‘‘(2) SPECIAL RULE FOR JOINT RETURNS.—The 
amount of the exclusion under subsection (a) on a 
joint return for any taxable year shall be allocated 
equally between the spouses for purposes of applying 
the limitation under paragraph (1) for any suc-
ceeding taxable year. 
‘‘(c) DEFINITIONS.—For purposes of this section— 
‘‘(1) FIRST-TIME
FARMER.—The term ‘first- 
time farmer’ means a first-time farmer (as defined 
in section 147(c)(2)(C), determined without regard 
to clause (i)(II) thereof) who meets the requirements 
of section 147(c)(2)(B). For purposes of the pre-
ceding sentence, in applying clause (ii) of section 
147(c)(2)(B), the material and substantial participa-
tion standard shall be treated as met with respect to 
a qualified farm if the first-time farmer will— 
‘‘(A) perform not less than 1,000 hours of 
service with respect to such farm, or 
‘‘(B) provide half the required manage-
ment and labor with respect to such farm.
‘‘(2) QUALIFIED FARM PROPERTY.—The term 
‘qualified farm property’ means real property located 
in the United States if—
‘‘(A) during periods aggregating 3 years or 
more of the 5-year period ending on the date of 
the sale or exchange of such real property, such 
real property was used as a farm for farming 
purposes by the taxpayer, the taxpayer’s 
spouse, or other member of the family of the 
taxpayer, and 
‘‘(B) there was material participation by 
the taxpayer, the taxpayer’s spouse, or other 
member of the family of the taxpayer in the op-
eration of the farm during 3 years or more of 
the 5-year period ending on the earlier of—
‘‘(i) the sale or exchange of such real 
property, or 
‘‘(ii) the later of the retirement of the 
taxpayer or the taxpayer’s spouse who ma-
terially participated. 
‘‘(3) OTHER DEFINITIONS.—The terms ‘mem-
ber of the family’, ‘farm’, ‘farming purposes’, and 
‘material participation’ have the respective meanings 
given such terms by paragraphs (2), (4), (5), and 
(6) of section 2032A(e), respectively.
‘‘(d) USE CERTIFICATION AS FARM FOR FARMING 
PURPOSES.—The certification requirement of this sub-
section is a certification that the use of the qualified farm 
property referred to in subsection (a)(1) will be as a farm 
for farming purposes for not less than the 10-year period 
beginning on the date of the sale or exchange referred to 
in subsection (a)(1). 
‘‘(e) SPECIAL RULES.—For purposes of this section, 
the following rules shall apply: 
‘‘(1) Rules similar to the rules of subsections 
(e) and (f) of section 121. 
‘‘(2) Rules similar to the rules of paragraphs 
(4) and (5) of section 2032A(b) and paragraph (3) 
of section 2032A(e). 
‘‘(f) TREATMENT OF DISPOSITION OR CHANGE IN 
USE OF PROPERTY.—
‘‘(1) IN GENERAL.—If, as of the close of any 
taxable year, there is a recapture event with respect 
to any qualified farm property transferred to the 
taxpayer in a sale or exchange described in para-
graph (1) or (2) of subsection (a), then the tax of 
the taxpayer under this chapter for such taxable 
year shall be increased by an amount equal to the 
product of—
‘‘(A) the applicable recapture percentage, 
and 
‘‘(B) 10 percent of the taxpayer’s adjusted 
basis in the property on the date such property 
was transferred to the taxpayer. 
‘‘(2) APPLICABLE RECAPTURE PERCENTAGE.—
‘‘(A) IN GENERAL.—For purposes of this 
subsection, the applicable recapture percentage 
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 ................................................................................................
Year 7 ................................................................................................
Year 8 ................................................................................................
Year 9 ................................................................................................
Years 10 and thereafter .....................................................................
0.
‘‘(B) YEARS.—For purposes of subpara-
graph (A), year 1 shall begin on the date of the 
sale or exchange described in paragraph (1) or 
(2) of subsection (a). 
‘‘(3) RECAPTURE EVENT DEFINED.—For pur-
poses of this subsection, the term ‘recapture event’ 
means—
‘‘(A) CESSATION
OF
OPERATION.—The 
cessation of the operation of any property the 
sale or exchange of which to the taxpayer is de-
scribed in paragraph (1) or (2) of subsection 
(a) as a farm for farming purposes.
‘‘(B) CHANGE IN OWNERSHIP.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), the disposition of a 
taxpayer’s interest in any property the sale 
or exchange of which to the taxpayer is de-
scribed in paragraph (1) or (2) of sub-
section (a). 
‘‘(ii) AGREEMENT TO ASSUME RECAP-
TURE
LIABILITY.—Clause (i) shall not 
apply if the person acquiring such interest 
in the property agrees in writing to assume 
the recapture liability of the person dis-
posing of such interest in effect imme-
diately before such disposition. In the 
event of such an assumption, the person 
acquiring the interest in the property shall 
be treated as the taxpayer for purposes of 
assessing any recapture liability (computed 
as if there had been no change in owner-
ship). 
‘‘(4) SPECIAL RULES.—
‘‘(A) NO CREDITS AGAINST TAX.—Any in-
crease in tax under this subsection shall not be 
treated as a tax imposed by this chapter for
purposes of determining the amount of any 
credit under subpart A, B, or D of this part. 
‘‘(B) NO
RECAPTURE
BY
REASON
OF 
HARDSHIP.—The increase in tax under this 
subsection shall not apply to any disposition of 
property or cessation of the operation of any 
property as a farm for farming purposes by rea-
son of any hardship as determined by the Sec-
retary.’’. 
(b) CONFORMING AMENDMENT.—The table of sec-
tions for part III of subchapter B of chapter 1 of the In-
ternal Revenue Code of 1986 is amended by adding after 
the item relating to section 121 the following new item:
‘‘Sec. 121A. Exclusion of gain from sale of qualified farm property.’’.
(c) EFFECTIVE DATE.—The amendment made by 
this section shall apply to any sale or exchange on or after 
the date of the enactment of this Act, in taxable years 
ending after such date.
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