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US FIRPTA Real Estate Tax Reforms Welcomed

by Mike Godfrey, Tax-News.com, Washington

23 December 2015


Reforms to the Foreign Investment in Real Property Tax Act, contained in the recently passed "tax extenders" legislation, have been welcomed by the Real Estate Roundtable.

"The policies adopted by Congress recognize the vast role that commercial real estate plays in the US economy; these sensible, pro-growth steps will help ensure a more robust, more sustainable recovery over the long term," said Real Estate Roundtable's Chairman, William Rudin. "The FIRPTA changes pave the way for new investment that will create jobs and help modernize US commercial real estate and our aging infrastructure."

FIRPTA requires foreign investors to pay withholding taxes on capital gains when selling commercial properties or real estate securities in the United States. The PATH Act increases the FIRPTA maximum ownership stake exemption for foreign shareholders in a publicly traded US real estate investment trust (REIT) from 5 percent to 10 percent.

The PATH Act also exempts any US real property interest held by a foreign pension fund from FIRPTA withholding tax entirely, and extends relief to interests in REITs held by foreign collective investment vehicles that meet certain requirements.

US REITS do not pay corporate tax as long as at least 75 percent of their total assets are "real estate assets" and/or cash; at least 75 percent of gross income comes from real estate-related sources; and at least 90 percent of their taxable income is distributed to shareholders annually in the form of dividends.

The PATH Act also includes a two-year extension (and limited reform) of the 179D tax deduction for energy efficiency upgrades in commercial and multi-family buildings.

TAGS: capital gains tax (CGT) | tax | investment | real-estate investment | interest | law | real-estate | corporation tax | legislation | withholding tax | United States | tax breaks | dividends | Investment | Invest | Investment | Tax

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