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Debt & Equity

New tax legislation a ‘game changer’ for real estate industry

New legislation signed by President Obama will ease tax on foreign investment in American real estate.

The move is expected to encourage further global investment in US property as the provision will tax foreign pension funds the same as their U.S. counterparts.

President Obama signed the Protecting Americans From Tax Hikes (PATH) Act of 2015 into law, enacting major reforms to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).

Under the changes, non-U.S. investors can now hold up to 10 percent of a publicly traded U.S. REIT’s stock without triggering FIRPTA upon sale of the stock or upon receiving proceeds from a REIT’s sale of assets.

Previously, FIRPTA was triggered upon sale or a capital gain distribution if a foreign investor held more than 5 percent of a U.S. REIT’s shares.

Provisions in the PATH Act also provide REITs with more flexibility to manage their operations in an efficient and effective manner.
FIRPTA reform legislation in the House of Representatives was co-sponsored by Ways and Means Committee Chairman Kevin Brady (R-TX) and Ways and Means Committee member Joe Crowley (D-NY). In the Senate, reform was led by Senate Finance Committee members Mike Enzi (R-WY) and Bob Menendez (D-NJ).

The legislation has been described as a “game changer” by the real estate industry.

 Jeffrey DeBoer
Jeffrey DeBoer

“By breaking down outdated tax barriers to inbound investment, the FIRPTA relief will help mobilize private capital for real estate and infrastructure projects,” Jeffrey DeBoer, president and chief executive officer of the Real Estate Roundtable said.

Tom Salomone, National Association of Realtors president and broker-owner of Real Estate II Inc. in Coral Springs, Florida, praised the tax extenders package that includes many provisions supported by NAR.

“A strong economy requires certainty, and this proposal gives a healthy dose of it to millions of American taxpayers,ˮ said Salome.
“These tax extenders offer critical support for consumers, homeowners, commercial property investors and small businesses alike.ˮ

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