PATH Act provides several changes to FIRPTA
TAX BLOG |
The recently enacted Protecting Americans from Tax Hikes Act of 2015 (PATH Act) provides significant benefits for non-U.S. investors in U.S. real estate.
Generally, the Foreign Investment in Real Property Tax Act (FIRPTA) imposes U.S. federal income tax on the disposition of U.S. real property interests (USRPI) by non-U.S. persons. Such property interests include not only real property located in the United States, but also the stock of certain corporations with significant holdings of USRPI.
The PATH Act provides several significant modifications to the FIRPTA rules:
- First, it provides a new exemption from FIRPTA for certain qualified foreign pension funds. Subject to some exceptions, capital gain distributions received by a qualified foreign pension fund from a real estate investment trust (REIT) will be exempt from FIRPTA taxation.
- Second, the ownership threshold for the publicly traded REIT FIRPTA exception increased from 5 percent to 10 percent
- Third, a non-publicly traded REIT’s qualified shareholders, a newly defined term, owning 10 percent or less will also be exempt from FIRPTA
- Fourth, gain from the sale of stock in a qualified investment entity will not be subject to tax under FIRPTA if the qualified investment entity is domestically controlled
- Fifth, the cleansing rule for regulated investment companies and REITs has been eliminated.
- Finally, the PATH Act increased the rate of FIRPTA withholding from 10 percent to 15 percent on certain dispositions of USRPIs
Taxpayers currently subject to FIRPTA taxation should speak to their tax advisor in order to determine how the PATH Act may impact them.