By: Amanda Wilson
In late April, Senator Orrin Hatch introduced Senate bill 915, the Real Estate Investment and Jobs Act of 2015. When a foreign person invests in property in the U.S., that person is subject to U.S. tax when he/she/it disposes of their real estate investment under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). FIRPTA tax applies to the disposition of stocks of U.S. real estate investment trusts ("REITs"). FIRPTA tax is a damper on encouraging foreign investment in the U.S.
To address this negative impact on investing, the bill increases and clarifies the existing FIRPTA exemptions that are available to foreign investors holding REIT stock. For example, the bill increases from 5% to 10% the amount of REIT stock that an investor can hold and still qualify for the publicly traded REIT FIRPTA exception. The bill also clarifies what it means to be a domestically controlled REIT, providing helpful guidance for another common FIRPTA exception.
While these changes are good, the bill is not all good news. The bill also increases from 10% to 15% the general FIRPTA withholding rate.
If you deal with REITs, be sure to keep an eye on this bill for additional developments.