Agricultural Bond and Interest Relief Act of 1985

Agricultural Bond and Interest Relief Act of 1985 - Amends the Internal Revenue Code to allow an income tax exclusion for interest earned on a depository institution agricultural tax-exempt savings certificate. Limits the aggregate amount excludable to $10,000 ($20,000 in the case of a joint return).

Defines "depository institution agricultural tax-exempt savings certificate" as a certificate which: (1) is issued by a qualified savings institution after December 31, 1985, and before January 1, 1991; (2) has a maturity of one year; (3) has an investment yield equal to at least 70 percent of that of specified Treasury bills; and (4) is made available in denominations of $500. Requires a financial institution which issues such savings certificates to provide agricultural financing in an amount not less than the lesser of: (1) 75 percent of the face amount of savings certificates issued; or (2) 75 percent of net savings.

Allows an income tax exclusion for interest earned on obligations issued: (1) by any Federal land bank; (2) by any Federal land bank association; (3) by any Federal intermediate credit bank; (4) jointly by any combination of such entities; or (5) jointly by any combination of such entities and any bank for cooperatives the establishment of which was continued under the Farm Credit Act of 1971.

Allows States to issue tax-exempt agricultural bonds in excess of the limits imposed on the issuance of private activity bonds.