Congress Encourages Foreign Investment in REITs and Enacts Other REIT Reforms
by George C. Howell, III; Christopher Mangin, Jr.; Mark C. Van Deusen
Published: January, 2016
Submission: January, 2016
On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (the “Act”). The Act encourages foreign investments in REITs and ends certain tax-free REIT spin-offs. The Act also includes a largely helpful set of technical revisions to the REIT tax rules.Continue reading a summary of the more significant REIT provisions of the Act.
• Domestically-Controlled REITs. The sale of stock in a domestically controlled REIT is exempt from FIRPTA. Under prior law, publicly traded REITs often had difficulty determining whether they were domestically controlled because most or all of their shares are held in street name. The Act allows a publicly traded REIT to treat shareholders owning less than 5% of its stock as US persons unless the REIT has actual knowledge to the contrary. This change will create greater certainty as to whether publicly traded REITs are domestically controlled. The Act also clarifies how the domestically controlled rules apply when a REIT (whether publicly traded or not) has another REIT as a shareholder. If the REIT shareholder is publicly traded, it is treated as a US person if it is domestically controlled, and as a foreign person if it is not, for purposes of determining whether the REIT in which it owns shares is domestically controlled. If the REIT shareholder is not publicly traded, there is look-though to its shareholders in determining whether the REIT in which it owns shares is domestically controlled.
• This change will allow a REIT to treat a greater proportion of its assetsas good assets and will eliminate concerns regarding whether the sale of personal property leased with real property will produce bad income for aREIT.
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