Congress’s newly enacted ‘One Big Beautiful Bill Act’, part of a $3.4 trillion fiscal package, includes sweeping legislation that will reshape how financial institutions approach lending, income reporting, and other tax cuts.

Pinion tax advisors reviewed the provisions and breakdown several that could significantly impact financial institutions and ag lenders — particularly, a new tax exemption for agricultural loans.

Tax-Exempt Agricultural Loans

Under the One Big Beautiful Bill Act (H.R.1 – 2025), banks and qualified lenders may exclude 25% of the interest income from eligible agricultural and rural real estate loans from gross income for federal tax purposes.

Eligibility Criteria

  • Loans must be originated after July 4, 2025.
  • Must be secured by rural or agricultural real estate or a leasehold mortgage on such property.
  • Property must be used for farming, ranching, aquaculture, fishing, or seafood processing within the U.S. or its territories.
  • Residential mortgages and refinanced loans are not eligible, unlike those covered under Kansas Senate Bill 15.

Tax Benefit

  • 25% of the interest income from qualified loans is excluded from gross income.
  • Section 265 is amended to disallow 25% of the related interest expense, similar to the TEFRA penalty that banks might be familiar with on their municipal bonds.
  • This prevents double-dipping: banks cannot both exclude income and deduct the full cost of funds.

Documentation

Banks should begin tracking these qualified loans for tax reporting. The following is needed to calculate the loan deduction:

  • Interest income on the qualified loans (on a cash or accrual basis, depending on your tax method)
  • Average loan balances for the qualified loans for the tax year

Note: This tracking differs from what Kansas banks are doing under S.B. 15.

Other Key Items

  • QBI Deduction Made Permanent: The 20% Qualified Business Income deduction is now permanent.
  • Bonus Depreciation Extended: 100% bonus depreciation is permanently reinstated for qualified property placed in service on or after January 20, 2025.
  • Section 179 Expansion: Deduction limit raised to $2.5 million, with a phase-out beginning at $4 million.
  • Estate Tax Exemption Increased: Permanently raised to $15 million per individual and $30 million per couple, starting in 2026.
  • SALT Deduction Expanded: The state and local tax deduction cap is increased to $40,000 for tax years 2025–2029.
  • PTET Deductibility Preserved: Full deductibility for Pass-Through Entity Taxes remains intact.
  • Overtime Pay Deduction: Beginning in 2025, eligible employees can deduct up to $25,000 per year (for joint filers) of overtime premium pay from federal taxable income. This is an above-the-line deduction on the employee’s Form 1040 — no employer withholding adjustments are required
  • Car Loan Interest: Beginning in 2025, interest paid on qualifying car loans is now tax deductible up to $10,000 annually for new, U.S.-assembled vehicles. To support this new deduction, banks and lenders are required to report car loan interest to the IRS and provide borrowers with annual statements. For 2025, the IRS is offering transition relief. Lenders have extra time to implement reporting systems, and borrowers can use reasonable estimates of interest paid when filing. Formal IRS guidance is expected by October.

Please reach out to a Pinion financial institutions advisor with any questions or to discuss how these changes may affect your institution.