S 2637
110th CONGRESS
2d Session
S. 2637
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 SENATE OF THE UNITED STATES
February 14, 2008
Mr. HAGEL introduced the following bill; which was read twice and referred
to the Committee on Finance
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.
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 `Beginning Farmers and Ranchers Act of
2008'.
SEC. 2. EXCLUSION OF GAIN FROM SALE OF CERTAIN FARMLAND.
(a) In General- Part III of subchapter B of chapter 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 exchange of qualified
farm property to any other person who meets the certification requirement
of subsection (d), and
`(3) 25 percent of the gain from the sale or exchange of qualified
farm property to any other person for any other use.
`(b) Limitation on Amount of Exclusion-
`(1) IN GENERAL- The amount of gain excluded 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 individual filing a separate return),
reduced by the aggregate 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 succeeding 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 preceding sentence, in applying clause (ii) of
section 147(c)(2)(B), the material and substantial participation 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 management 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 operation
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 materially participated.
`(3) OTHER DEFINITIONS- The terms `member 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 subsection 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 paragraph (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:
The applicable recapture
`If the recapture event occurs in:
percentage is:
Years 1 through 5
--100
Year 6
--80
Year 7
--60
Year 8
--40
Year 9
--20
Years 10 and thereafter
--0.
`(B) YEARS- For purposes of subparagraph (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 purposes 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 described
in paragraph (1) or (2) of subsection (a) as a farm for farming
purposes.
`(B) CHANGE IN OWNERSHIP-
`(i) IN GENERAL- Except as provided in clause (ii), the disposition
of a taxpayer's interest in any property the sale or exchange
of which to the taxpayer is described in paragraph (1) or (2)
of subsection (a).
`(ii) AGREEMENT TO ASSUME RECAPTURE 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
disposing of such interest in effect immediately 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 ownership).
`(A) NO CREDITS AGAINST TAX- Any increase 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 reason of any hardship as determined by the Secretary.'.
(b) Conforming Amendment- The table of sections for part III of subchapter
B of chapter 1 of the Internal 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.
SEC. 3. INCREASE IN ALLOWABLE DOLLAR AMOUNT OF BONDS ISSUED FOR FIRST-TIME
FARMER PROJECTS.
(a) Acquisition of Depreciable Farm Property- Subparagraph (A) of section
144(a)(11) of the Internal Revenue Code of 1986 (relating to limitation
on acquisition of depreciable farm property) is amended by striking
`$250,000' and inserting `$500,000'.
(b) First-Time Farmer- Subparagraphs (A) and (C)(i)(II) of section 147(c)(2)
of such Code (relating to exception for first-time farmers) are each
amended by striking `$250,000' and inserting `$500,000'.
(c) Substantial Farmland- Clause (ii) of section 147(c)(2)(E) of such
Code (defining substantial farmland) is amended by striking `$125,000'
and inserting `$250,000'.
(d) Used Equipment Limitation- Subparagraph (F) of section 147(c)(2)
of such Code (relating to used equipment limitation) is amended by striking
`$62,500' and inserting `$500,000'.
(e) Effective Date- The amendments made by this section shall apply
to bonds issued after the date of the enactment of this Act.
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