text: SECTION 1. SHORT TITLE.
  
      This Act may be cited as the ``Beginning Farmers and Ranchers Tax 
  Incentive Act of 2003''.
  
  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 (as defined in 
          section 147(c)(2)(C) (determined without regard to clause 
          (i)(II) thereof)) who certifies that the use of such property 
          shall be as a farm for farming purposes for not less than 10 
          years after such sale or exchange,
              ``(2) 50 percent of the gain from the sale or exchange of 
          qualified farm property to any other person who certifies that 
          the use of such property shall be as a farm for farming 
          purposes for not less than 10 years after such sale or 
          exchange, 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) Qualified Farm Property.--
              ``(1) Qualified farm property.--For purposes of this 
          section, the term `qualified farm property' means real property 
          located in the United States if, 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--
                      ``(A) such real property was used as a farm for 
                  farming purposes by the taxpayer or a member of the 
                  family of the taxpayer, and
                      ``(B) there was material participation by the 
                  taxpayer (or such a member) in the operation of the 
                  farm.
              ``(2) Definitions.--For purposes of this subsection, the 
          terms `member of the family', `farm', and `farming purposes' 
          have the respective meanings given such terms by paragraphs 
          (2), (4), and (5) of section 2032A(e).
              ``(3) Special rules.--For purposes of this section, rules 
          similar to the rules of paragraphs (4) and (5) of section 
          2032A(b) and paragraphs (3) and (6) of section 2032A(e) shall 
          apply.
      ``(d) Other Rules.--For purposes of this section, rules similar to 
  the rules of subsection (e) and subsection (f) of section 121 shall 
  apply.
      ``(e) 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:
  
  ``If the recapture event occurs in: The applicable recapture 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).
              ``(4) Special rules.--
                      ``(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.
target: Beginning Farmers and Ranchers Tax Incentive Act of 2003 - Amends the Internal Revenue Code to exclude from gross income: (1) 100 percent of the gain from the sale or exchange of qualified farm property to a first-time farmer who certifies that the use of such property shall be as a farm for farming purposes for not less than 10 years after such sale or exchange; (2) 50 percent of the gain from the sale or exchange of qualified farm property to any other person who certifies that the use of such property shall be as a farm for farming purposes for not less than 10 years after such sale or exchange; and (3) 25 percent of the gain from the sale or exchange of qualified farm property to any other person for any other use. Limits the amount of any of the above exclusions with respect to any taxable year to $500,000 on a joint return.
feat_title: 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.