NMHC/NAA were encouraged this week when a bipartisan group of 32 House Ways and Means Committee members sent a letter on October 10 that was strongly supported by the apartment industry to Treasury Secretary Steven Mnuchin calling for relief from the Foreign Investment in Real Property Tax Act (FIRPTA). Spearheaded by Reps. Pat Tiberi (R-OH) and Joe Crowley (D-NY), the tax writers asked the Treasury Department to withdraw IRS Notice 2007-55 with respect to liquidating distributions of a REIT.
Currently, the IRS treats liquidating distributions of a REIT as subject to FIRPTA, triggering punitive taxes on foreign investors. The letter asks Treasury to restore the prior tax treatment of liquidating distributions of a REIT as a sale of stock, which would be tax exempt for foreign investors.
FIRPTA taxes foreigners’ gains on the income they earn from, and then the sale of, U.S. real estate. Foreign investors can avoid U.S. taxes and reduce their worldwide tax burden simply by investing in U.S. equities instead, or in real estate outside the U.S., potentially reducing capital and growth for the commercial real estate industry.
The discriminatory and punitive tax regime created by FIRPTA precludes U.S. real estate companies from tapping into an important source of capital for developing, upgrading and refinancing properties. Ultimately, it does so to the detriment of job creation and the overall economy.
NMHC/NAA have long called on policymakers to either repeal or reform FIRPTA to promote foreign investment in the U.S. multifamily industry, helping to meet the growing demand for rental housing.
More information on FIRPTA can be found here.
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