To amend the Internal Revenue Code of 1986 to provide special rules for the exchange or installment sale of certain agricultural property.

November 3, 2005

Mr. ADERHOLT introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to provide special rules for the exchange or installment sale of certain agricultural property.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Farmers Tax Deferral Act'.

SEC. 2. SPECIAL RULES FOR EXCHANGE OF QUALIFIED AGRICULTURAL PROPERTY FOR REAL PROPERTY.

(a) Treated as Like Kind With Real Property- Section 1031 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

`(i) Qualified Agricultural Property Treated as Like Kind With Real Property- For purposes of this section--

`(1) IN GENERAL- In the case of the exchange of qualified agricultural property for real property held either for productive use in a trade or business or for investment, such qualified agricultural property and such real property shall be treated as property of a like kind.

`(2) QUALIFIED AGRICULTURAL PROPERTY- The term `qualified agricultural property' means--

`(A) any single purpose agricultural or horticultural structure (as defined in section 168(i)(13)), and

`(B) any equipment or fixtures which are related in use to such structure.'.

(b) Ordinary Income Recapture Deferred Until Disposition of Real Property Acquired in Exchange-

(1) IN GENERAL- Subsection (b) of section 1245 of such Code is amended by adding at the end the following new paragraph:

`(9) SPECIAL RULE FOR LIKE KIND EXCHANGES OF QUALIFIED AGRICULTURAL PROPERTY-

`(A) IN GENERAL- If qualified agricultural property (as defined in section 1031(i)) is disposed of and gain (determined without regard to this section) is not recognized in whole or in part under section 1031, then the amount of gain taken into account by the transferor under subsection (a)(1) shall not exceed the sum of--

`(i) the amount of gain recognized on such disposition (determined without regard to this section), plus

`(ii) the fair market value of property acquired which is not taken into account under clause (i) and which is not--

`(I) section 1245 property, or

`(II) real property held either for productive use in a trade or business or for investment.

`(B) ORDINARY INCOME RECAPTURE ON DISPOSITION OF REAL PROPERTY ACQUIRED IN EXCHANGE- If real property the fair market value of which is taken into account under subparagraph (A)(ii)(II) in determining the gain on the disposition of any qualified agricultural property is disposed of by the transferee, the lesser of--

`(i) the excess of--

`(I) the amount realized on the disposition of such real property (in the case of a disposition other than a sale, exchange, or involuntary conversion, the fair market value of such real property), over

`(II) the adjusted basis of such real property, or

`(ii) the amount of gain that would have been treated as ordinary income under this section if such qualified agricultural property were sold at fair market value on the date of the disposition of such structure,

shall be treated as ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle.'.

(2) CONFORMING AMENDMENT- Paragraph (4) of section 1245(b) of such Code is amended by striking `If' and inserting `Except as provided in paragraph (9), if'.

(c) Effective Date-

(1) SUBSECTION (a)- The amendments made by subsection (a) shall apply to transfers after the date of the enactment of this Act.

(2) SUBSECTION (b)- The amendments made by subsection (b) shall apply to dispositions after the date of the enactment of this Act.

SEC. 3. SPECIAL RULES FOR INSTALLMENT SALES OF QUALIFIED AGRICULTURAL PROPERTY.

(a) In General- Subsection (i) of section 453 of the Internal Revenue Code of 1986 is amended by redesignating paragraph (2) as paragraph (3) and by inserting after paragraph (1) the following new paragraph:

`(2) SPECIAL RULE FOR QUALIFIED AGRICULTURAL PROPERTY- Notwithstanding paragraph (1), in the case of any installment sale of qualified agricultural property (as defined in section 1031(i)) to which subsection (a) applies--

`(A) income from the installment sale shall be taken into account under the installment method, and

`(B) income recognized for any taxable year from such sale under such method shall be recognized as recapture income in such year in the same proportion to such income recognized for such year from such sale as--

`(i) the aggregate recapture income from such sale (recognized or to be recognized when payment is completed), bears to

`(ii) the aggregate income from such sale (so recognized or to be recognized).'.

(b) Conforming Amendment- Paragraph (3) of section 453(i) of such Code, as redesignated under this section, is amended by striking `paragraph (1)' and inserting `this subsection'.

(c) Effective Date- The amendments made by this section shall apply to sales after the date of the enactment of this Act.

END