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 under this section 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 transferee meets the certification requirement of this subsection if such transferee 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 amount of the tax that will be imposed on such transferee under subsection

(d)in the event of a recapture event (as defined in subsection (d)). 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 described in subsection

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

(a)with respect to the sale or exchange of 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 during 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 as of the date of the sale or exchange described in subsection (a), 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) during the 10-year period ending on the date of the sale or exchange described in subsection (a), and has not operated a farm during such 10-year period. The term young farmer means an individual who has not attained age 46 as of the date of the sale or exchange described 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. The term recapture period means the 10-year period beginning on the date of the sale or exchange of qualified farm property described in subsection (a). Material participation shall be determined in a manner similar to the manner used for purposes of paragraph

(1)of section 1402(a) (relating to net earnings from self-employment). In the case of a partnership, S corporation, or other entity, the material participating requirements under subsection (d)(2)(B) and paragraph (6)(B) shall be treated as having been met by such partnership, S, corporation, or other entity if there is material participation by individuals owning 50 percent or more of the capital or profits interest of such partnership, S corporation, or other entity. For purposes of paragraph (6)(B), a member of the family of an individual owning a capital or profits interest of a partnership, S corporation, or other entity shall not be taken into account for purposes of determining whether the partnership, S corporation, or other entity meets the material participating requirements under clause

(i)unless such member of the family is also owns a capital or profits interest in such partnership, S corporation, or other entity. The terms member of the family , farm , and farming purposes 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, 2021.