New ACRE Act Exempts Banks from Paying Tax on Interest from Rural Loans, Capping Single-Family Homes at $750k

The newly proposed Access to Credit for our Rural Economy Act of 2025—or ACRE Act—is essentially a major tax break aimed squarely at financial institutions that lend money in rural and agricultural areas. Here’s the deal: under this bill, qualified lenders like FDIC-insured banks, insurance companies, and certain Farm Credit entities would no longer have to pay federal income tax on the interest they earn from specific loans secured by rural or agricultural real estate.

This new tax exemption, created under a fresh section of the tax code (Section 139J), is designed to make lending to farmers, ranchers, and rural homeowners much more financially attractive for the banks. The thinking is that if the banks save money on taxes, they’ll pass those savings along to borrowers in the form of lower interest rates. The bill is clear that this applies only to loans made after the Act becomes law, though refinancing an older loan counts as a new one for these purposes.

The Fine Print on What Qualifies

Not every loan to a rural resident will suddenly become tax-free for the lender. The bill sets strict boundaries on what counts as a “qualified real estate loan.” For example, if you’re a family buying a single-family home in a rural area, your loan principal cannot exceed $750,000 for the lender to get this tax break. This cap is a clear signal that the benefit is aimed at average-priced homes, not high-end rural properties.

For agricultural use, the property must be primarily used for producing agricultural products, fishing, seafood processing, or aquaculture. Crucially, the bill also slams the door shut on certain borrowers: no loan made to a “foreign adversary entity” (which it names specifically as China, Russia, Iran, North Korea, Cuba, and Venezuela under Maduro) can qualify for this tax exemption. This provision links the tax incentive directly to national security interests, ensuring U.S. financial institutions aren't getting a tax break for funding entities tied to geopolitical rivals.

The Real-World Impact: Who Pays and Who Benefits?

This legislation creates a targeted subsidy for the financial sector. The primary, immediate beneficiaries are the qualified lenders. They get to keep more of the interest income they collect from rural loans, boosting their bottom line. The intended ultimate beneficiaries are the rural borrowers—the farmer needing a new equipment loan, the rancher expanding their land, or the family buying their first home outside the city limits. If the lenders actually lower their interest rates to compete for this tax-advantaged business, those borrowers could see cheaper credit.

However, there’s a catch: the bill doesn’t require lenders to lower rates. It just makes it financially beneficial for them to do so. This raises the question of whether the tax savings will truly trickle down to the borrower, or simply become a massive tax windfall for the banks. This is why the bill includes a provision mandating the Treasury Secretary to report to Congress within five years, analyzing whether this tax break actually caused interest rates on these loans to drop. That report will be the acid test of whether this policy works as intended.

From a taxpayer perspective, this new exemption means the federal government will collect less tax revenue from these financial institutions. Essentially, the general taxpayer is subsidizing the cost of credit in the rural economy. This is a significant trade-off, and the success of the ACRE Act hinges entirely on whether the lenders use their tax savings to genuinely lower borrowing costs for rural America.