Real Estate Revitalization Act of 2010

Recently introduced legislation could make significant changes to the Foreign Investment in Real Property Tax Act ("FIRPTA"). The bill - H.R. 4539 - introduced by Rep. Joseph Crowley (D-NY) would effectively increase the attractiveness of U.S. real property investments to non-U.S. investors. From the U.S. perspective, additional potential benefits may include an influx of capital to U.S. real estate markets and reduce the need for debt-financing. From the foreign perspective, there would no longer be a penalty against foreigners that invest in U.S. real estate.

Currently, FIRPTA subjects non-U.S. investors to U.S. federal income tax (via withholding) on gain derived from the disposition of United States Real Property Interests (USRPIs). USRPIs include both direct and indirect interests in U.S. real property. Inter alia, under the proposed bill, interests in United States Real Property Holding Corporations (USRPHCs) would not be considered USRPIs and would not be subject to FIRPTA.

In addition, the proposed bill would classify REIT capital gains and liquidating distributions to foreigners as ordinary dividends. Capital gain dividends would be treated the same as ordinary REIT dividends, subject to 30% withholding or a reduced rate if treaty benefits are available. REIT liquidating distributions would also be classified as ordinary dividends and subject to U.S. withholding to the extent the distribution exceeds the foreigner's basis in the REIT stock.

Read the text of the legislation. 

If you have any comments or questions regarding this post, please contact Kenneth Weissenberg or Aninda Dhar.

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