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Last year ended on a favorable note for foreign investors interested in the U.S. real estate market. On December 18, 2015, President Obama signed a bill that dramatically reformed the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). The reforms mark the most significant changes to FIRPTA since its enactment 35 years ago.
The new bill, called Protecting Americans from Tax Hikes Act of 2015, dramatically reforms the taxation of real estate investment trusts (REITs). It also extends several tax relief provisions that had expired at the end of 2014.
According to attorneys at Skadden, Arps, Slate, Meagher & Flom LLP, a firm engaged in the legislation, the new bill shows the U.S.’s continued legislative commitment to bringing foreign capital to the domestic real estate market.
Critics of FIRPTA’s former taxation model say it created unintended barriers that drove foreign capital to real estate investment opportunities abroad instead of in the United States.
Efforts to reform FIRPTA have been supported by everyone from Chairman of the House Ways and Means Committee Kevin Brady, R-Texas, and Congressman Joseph Crowley, D-N.Y, in the House of Representatives, to Sen. Mike Enzi, R-Wyo., and Sen. Bob Menendez, D-N.J., in the Senate.
Some of the most notable changes include:
The bill also:
To help offset the budgetary impact of the FIRPTA reforms, revenue-raising provisions were passed unanimously by the Senate Finance Committee earlier in 2015.
They include increasing the FIRPTA withholding rate on the disposition or distribution of a U.S. real property interest from 10 to 15 percent. This doesn’t establish a new tax. Rather, it helps FIRPTA secure taxes that previously went uncollected.
Experts say this is unlikely the last round of changes expected in the FIRPTA reform process.
For a full list of the bill’s changes, click here.
To learn more about how CT can help you with real estate transactions and due diligence, contact a CT representative at 844-409-1386 (toll-free US).
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