Read Publication
Tax legislation to encourage foreign investment in U.S. real estate made through
real estate investment trusts (“R.E.I.T.’s”) was recently introduced in both the House
and the Senate. Representatives Kevin Brady (R-T.X.) and Joe Crowley (D-N.Y.),
introduced H.R. 2128, the “Real Estate Investment and Jobs Act of 2015.” The
measure, backed by 22 bipartisan members of the U.S. House of Representatives,
would make significant changes to the Foreign Investment in Real Property Tax Act
(“F.I.R.P.T.A.”). The bill is similar to legislation Representatives Brady and Crowley
introduced in the last session of Congress, as well as a companion version introduced
in the U.S. Senate this year, co-authored by Senators Mike Enzi (R-W.Y.)
and Bob Menendez (D-N.J.), S. 915. The Senate version would adopt additional
changes including a proposed increase in F.I.R.P.T.A. withholding tax rates that
would complicate investing by those not benefitting from the proposals. Enactment
of the significant provisions in H.R. 2128 and S. 915 would signify an important step
toward achieving F.I.R.P.T.A. reforms that have been advocated for by a number of
real estate organizations for many years.
R.E.I.T. QUALIFICATION
A R.E.I.T. is a creation of the tax law. Any corporation, trust, or unincorporated entity
may qualify as a R.E.I.T. if it meets the requirements of Code §856. A benefit of
R.E.I.T. status is that it is a conduit for tax purposes, provided distributions are made
to shareholders. No tax is imposed on the R.E.I.T. if it distributes all its income to its
owners. The R.E.I.T. claims a deduction for dividends that it pays to its shareholders.
In addition, a shareholder of the R.E.I.T. may be able to treat a dividend from
the R.E.I.T. as taxable at capital gains rates if the underlying income of the R.E.I.T.
that generates the dividend arises from the sale of an asset.
