Commercial Real Estate Industry Seeks Changes to 1980 Tax Law to Attract Foreign Investors

The commercial real estate industry is facing an enormous debt crunch, with hundreds of billions of dollars in debts coming due in the next year. To alleviate this crisis, industry groups and lawmakers are pushing Congress to modify the 1980 Foreign Investment in Real Property Tax Act (FIRPTA), which imposes taxes on capital gains made by foreign investors on real estate in the United States. Proponents argue that the law is keeping critical investment cash on the sidelines and that changes are necessary to attract foreign investors to the struggling real estate market.

Key Takeaways:

• The commercial real estate industry is facing a debt crunch, with $1.4 trillion in outstanding commercial real estate loans coming due between 2010 and 2014.
• FIRPTA imposes taxes on capital gains made by foreign investors on real estate in the United States, which has led to a tax incentive for foreign citizens to invest in stocks or bonds instead of real estate.
• Foreign corporations that invest in U.S. real estate can face additional taxes, resulting in an overall tax impact of up to 54 percent.
• Rep. Joseph Crowley, D-N.Y., has introduced legislation to modify FIRPTA, which would tax foreign corporations or individuals who invest in U.S. real estate and then sell it at ordinary income rates, not higher capital gains rates.
• The Real Estate Roundtable, a group representing shopping market developers, apartment associations, and other real estate interests, is pushing for changes to FIRPTA to allow foreign investors to pour money into the real estate market.
• The industry has an ally in Rep. Crowley, a member of the Ways and Means Committee, who is working to add the measure to a package of tax breaks being assembled by the tax-writing panel as part of the Democrats' "jobs agenda."

Statistics:

• $1.4 trillion: The amount of outstanding commercial real estate loans coming due between 2010 and 2014 (Source: Congressional oversight panel monitoring the 2008 financial industry bailout, PL 110-343)
• 54 percent: The overall tax impact on foreign corporations that invest in U.S. real estate (Source: original text)
• 1980: The year the Foreign Investment in Real Property Tax Act was enacted (Source: original text)
• 2007: The year the IRS ruled that foreign shareholders in U.S. real estate investment trusts are subject to capital gains tax on distributions resulting from a liquidation (Source: original text)

Sources:

• CQ Today, Round-the-clock coverage of news from Capitol Hill (2010 Congressional Quarterly Inc. All Rights Reserved)