FIRPTA Withholding Tax Set to Increase

New law ahead road signBy:  Amanda Wilson

The Foreign Investment in Real Property Tax Act (FIRPTA) subjects foreign sellers to U.S. tax when they sell their interest in real property located in the U.S., including interests in companies that predominately hold real estate.  To accomplish this, the purchasers generally are required to withhold 10% of the gross sales price when the seller is foreign.   Legislation that was passed at the end of last year (the PATH Act) increases this withholding rate from 10% to 15% effective as of February 16, 2016.  If you are purchasing a U.S. real estate interest from a foreign seller, make sure you are aware of this change and adequately withhold.  If you fail to do so, you may find yourself liable for the extra withholding.

New REIT Bill Coming?

By:  Amanda WilsonCapitol building

In late April, Senator Orrin Hatch introduced Senate bill 915, the Real Estate Investment and Jobs Act of 2015.  When a foreign person invests in property in the U.S., that person is subject to U.S. tax when he/she/it disposes of their real estate investment under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”).  FIRPTA tax applies to the disposition of stocks of U.S. real estate investment trusts (“REITs”).  FIRPTA tax is a damper on encouraging foreign investment in the U.S.

To address this negative impact on investing, the bill increases and clarifies the existing FIRPTA exemptions that are available to foreign investors holding REIT stock.   For example, the bill increases from 5% to 10% the amount of REIT stock that an investor can hold and still qualify for the publicly traded REIT FIRPTA exception.  The bill also clarifies what it means to be a domestically controlled REIT, providing helpful guidance for another common FIRPTA exception.

While these changes are good, the bill is not all good news.  The bill also increases from 10% to 15% the general FIRPTA withholding rate.

If you deal with REITs, be sure to keep an eye on this bill for additional developments.


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