Transwestern: Foreign Property Tax Act Repeal Could Boost U.S. CRE Investment

Repealing the Foreign Investment in Real Property Tax Act could significantly boost foreign investment in U.S. real estate, Transwestern Chief Investment Officer Tom McNearney and others say.

Passed in 1980, FIRPTA allows the United States to tax foreign investors when they sell any U.S. real estate property they own. Foreign investors must also withhold 15 percent of a property’s sale price to ensure payment of any taxes owed. By contrast, foreign investors generally do not need to pay U.S. taxes when they buy or sell stock in U.S. companies.

“In a year when tax reform is on the menu, lawmakers should consider repealing FIRPTA to unlock billions of dollars for potential investment in U.S. real estate,” McNearney said.

Peter Lowy, CEO of Westfield Corp., Sydney, Australia, told The Hill newspaper that his global shopping center firm holds significant investments in the U.S. “Since its enactment, FIRPTA has done nothing but cause tremendous harm to the U.S. economy and its citizens,” he said.

The Invest in America Coalition, which includes Brookfield, Toronto, Kimpton Hotels, San Francisco, Starwood Capital Group, Greenwich, Conn., and other international real estate firms and trade associations, noted FIRPTA also imposes a 35 percent capital gains tax on international investors with an interest in any type of U.S. commercial property.

“This punitive tax remains a significant barrier to new investments that could help America grow,” the Invest in America Coalition said. “Today, Congress singles out no other asset class or industry for such negative tax treatment.”

McNearney called FIRPTA an “antiquated double standard” and a disincentive to invest that unfairly burdens the property sector. “Repealing FIRPTA would add tremendous liquidity that could offset slowing institutional allocations to real estate,” he said.