Beginning Farmer Tax Incentive Act

Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 139L the following new section:

Gross income shall not include 40 percent of the gain from the sale or exchange of qualifying farmland held for more than 1 year if such farmland is transferred to a beginning farmer in such sale or exchange.

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 excluded under paragraph (1) with respect to such taxpayer for the 4 preceding taxable years.

Gross income shall not include 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 exceeding 10 years.

The amount excluded under paragraph (1) by any taxpayer for any taxable year shall not exceed $25,000.

The term qualifying farmland 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 exchange described in subsection (a)(1) (or, for purposes of subsection (b)(1), the date of the lease or rental), there have been periods aggregating 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

(ii) there was material participation by the taxpayer or a member of the taxpayer’s family in the operation of the farm.

For purposes of this subsection, the term member of the family has the same meaning given such term in section 409(p)(4)(D).

For purposes of paragraph (1)(B)—

Rules similar to the rules of subparagraphs (A) and (B) of section 2032A(b)(4) shall apply.

Rules similar to the rules of section 2032A(b)(5) shall apply.

For purposes of this section—

The term beginning farmer means any individual who—

(A) is a citizen of the United States, and

(B) is certified by the Secretary of Agriculture (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 attained age 18, such individual had income or loss properly reported on Schedule F for not less than 1 and not more than 10 taxable 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 operator of a farm that constitutes new production 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.

The term beginning farmer shall include any corporation or partnership if more than 50 percent of the equity interests in such corporation or partnership are held (directly or indirectly) by one or more individuals described in paragraph (1).

Rules similar to the rules of section 194(b)(2) shall apply for purposes of subsections (a)(2) and (b)(2) of this section.

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 cessation shall be increased by the applicable percentage of the taxpayer’s tax benefit with respect to such sale or exchange.

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 paragraph (1),

(B) 80 percent in the case of the second year of such period,

(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.

For purposes of this subsection, 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 application of this section.

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:

The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

The Secretary of the Treasury, or the Secretary’s delegate, shall annually submit to Congress a written report reviewing the costs and benefits and containing statistical information 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 income excluded under such section, and the total number of taxpayers excluding such income, for the taxable years covered by such report.