Building  Owners  and  Managers  Association  International

Building Owners and Managers Association International

Foreign Investment in Real Property Tax Act (FIRPTA)

BOMA Position

BOMA International supports amending, if not the outright repeal, of the Foreign Investment in Real Property Tax Act (FIRPTA) of 1980 to increase the amount of foreign capital invested in the U.S. commercial real estate market.

Background

FIRPTA discourages the investment of foreign capital in U.S. real estate by treating a gain or loss by a foreign investor from the sale of a U.S. Real Property Interest (“USRPI”) as if such gain or loss were effectively connected with a U.S. trade or business. Such policy is completely at odds with the tax treatment of other types of investments. Currently, a foreign investor faces no U.S. tax liability from income realized from other forms of investments, such as stocks and bonds or the interest earned on U.S. bank accounts, to name a few.

Initially introduced in the late 1970s to prevent foreigners from driving up prices and acquiring excessive amounts of agricultural land, FIRPTA was eventually passed and expanded to cover all types of real estate held by non-U.S. investors.

Efforts were made to ease the FIRPTA rules late in the 111th Congress. The House of Representatives passed H.R. 5901, the “Real Estate Jobs and Investment Act” by a nearly unanimous vote of 402-11. Introduced by Congressman Joseph Crowley (D-NY), the bill amended FIRPTA by increasing the ownership stake a foreign investor may have in a publicly traded Real Estate Investment Trust (REIT) without being subjected to FIRPTA from five percent to ten percent. However, the Senate did not consider the bill before Congress adjourned.

Legislation was once again introduced in the 112th Congress year in both the House and Senate.   Congressman Kevin Brady (R – Texas) and Senator Robert Menendez (D – N.J.) introduced H.R. 2989 and S. 1616, respectively, which would also increase the ownership stake that a foreign investor may hold in a publicly-traded real estate investment trust (REIT) without being subjected to onerous reporting and administrative requirements under the Foreign Investment in Real Property Tax Act (FIRTPA) to 10 percent. 

The legislation also would reverse an onerous 2007 ruling by the Internal Revenue Service (IRS Notice 2007-55) that expanded FIRPTA’s reach — applying the law to liquidating distributions received by foreign investors from private, domestically-controlled REITs. 

Related Content