Congressional proposals could affect future real estate prices and project funding


by Rob Seidenwurm


Under the Capitol dome in Washington, lawmakers regularly produce a waterfall of regulations and tax laws that affect commercial mortgage origination. On the verge of the 2016 presidential election year, the projected policy showers include a tax provision aimed at real estate developers and private equity funds and a plan to revise the withholding- regulations for foreign investors. A variety of initiatives under consideration by lawmakers and regulators have the potential of changing the commercial real estate market in 2016 and beyond. One of the most significant is a proposal in Congress that would overhaul the Foreign Investment in Real Property Tax Act of 1980 — or as escrow companies everywhere know it, FIRPTA.

The act’s primary objective has been to ensure that foreign investors pay federal taxes on gains from sales of real property. Under the law, the Internal Revenue Service (IRS) withholds a total of 10 percent of the proceeds from transactions involving real estate owned by foreign investors, regardless of whether there was a gain on the sale of the property. So on a $10 million transaction, $1 million must be withheld, whether the seller owes taxes on the transaction or not. The policy is des- igned to limit the amount of potential tax revenue that leaves the country while the IRS waits for foreign- investor groups to file their tax returns.

Among other things, the law provides that it is the buyer’s obligation to ensure that a sale complies with FIRPTA regulations. So, if buyers believe that they are dealing with domestic sellers, but it turns out a seller is from a foreign country, the buyer could be liable for the tax due on the sale.


READ FULL ARTICLE – Scotsman Guide Commercial Edition and, November 2015