Sec. 403. Exclusion of gain from sale of certain farm property and agricultural easements

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Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by adding after section 121 the following new sections: Gross income shall not include gain from the sale or exchange of qualified farm property if such property is sold to or exchanged with a transferee who— is a qualified farmer, and meets the certification requirement of subsection (c). The amount of gain excluded from gross income under subsection

(a)with respect to any taxable year shall not exceed the excess, if any of— $500,000 ($1,000,000 in the case of a joint return), over the amount excluded from the gross income of the taxpayer for all prior taxable years. 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. A qualified farmer meets the certification requirement of this subsection if such person signs a written certification stating the following: The use of such property will be as a farm for farming purposes at all times during the recapture period. The transferee has been notified of the recapture liability arising from a disposition or change in the use of such property at any time during the recapture period. If there is a recapture event during the recapture period with respect to any qualified farm property, then the tax imposed under this chapter on the transferee referred to in subsection

(a)for the taxable year which includes the first such recapture event shall be increased by the amount excluded from the product of— the transferor’s gross income under subsection

(a)with respect to such qualified farm property, multiplied by the rate of tax in effect under section (1)(h)(1)(D). For purposes of this subsection, the term recapture event means, with respect to any qualified farm property— The cessation of the operation of such property as a farm for farming purposes at any time in the recapture period. The failure of a qualified farmer to materially participate in the operation of the farm at any time during the recapture period. Except as provided in clause (ii), the disposition of any interest in such property by the transferee referred to in subsection

(a)during the recapture period. Clause

(i)shall not apply to any farm property if the person acquiring the interest referred to in such clause agrees in writing to assume the recapture liability of the person disposing of such interest. In the event of such an assumption, this subsection shall apply to the person acquiring such interest as though such person were the transferee referred to therein (and this subsection shall be applied as if there had been no change in ownership). 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. 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 if such disposition or cessation occurs by reason of any hardship. For purposes of this section, rules similar to the rules of subsections

(e)and

(f)of section 121 shall apply. For purposes of this section— The term qualified farmer means— a beginning farmer, socially disadvantaged farmer, qualified veteran farmer, young farmer, or any entity if 50 percent or more of the capital and profits of such entity are owned by one or more individuals described in paragraph (A). The term beginning farmer means an individual that— has not operated a farm, or has operated a farm for not more than 10 years. The term socially disadvantaged farmer means an individual who is a member of one or more of the following groups: American Indians. Alaska Natives. Asians. Blacks or African Americans. Native Hawaiians or other Pacific Islanders. Hispanics. Women. The term qualified veteran farmer means an individual who— first obtained status as a veteran (as defined in section 101(2) of title 38 United States Code) in the most recent 10-year period, and has not operated a farm for more than 10 years. The term young farmer means an individual who has not attained age 46 as of the date of the sale or transfer referred to in subsection (a). The term qualified farm property means real property located in the United States if— during the 5-year period ending on the date of the sale or exchange referred to in subsection (a), such property has been used by the taxpayer or a member of the family of the taxpayer as a farm for farming purposes for periods aggregating 3 years or more, and there was material participation by the taxpayer or a member of the family of the taxpayer in the operation of the farm during such 3 years. For purposes of this section, if the taxpayer referred to in paragraph

(A)is other than an individual and all of the capital and profits interests of such entity are held by members of a single family, then such members shall be treated as members of the family of such taxpayer. The term recapture period means the 10-year period following the sale or exchange of qualified farm property described in subsection (a). The terms member of the family , farm , farming purposes , and material participation have the respective meanings given such terms in section 2032A(e). Gross income shall not include gain from the sale or exchange of an agricultural conservation easement. The amount of gain excluded from gross income 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. The term agricultural conservation easement means an easement or conservation-related restriction on agricultural land (granted in perpetuity) that— is conveyed for the purpose of protecting natural resources and the agricultural nature of the land, and permits the landowner the right to continue agricultural production and related uses. For purposes of this section, rules similar to the rules of subsections

(e)and

(f)of section 121 shall apply. . 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 items: 121A. Exclusion of gain from sale of qualified farm property. 121B. Exclusion of gain from sale of agricultural conservation easement. . The amendments made by this section shall apply to any sale or exchange in taxable years ending after December 31, 2020.