Possible Changes Coming For REITS

By:  Amanda Wilson

Real estate investment trusts (“REITs”) are a popular investment vehicle in the senior living area, especially when the sponsor is trying to attract foreign investors.   Senator Orrin Hatch recently introduced Senate bill 915, the Real Estate Investment and Jobs Act of 2015, in an effort to attract even more foreign investment.

When a foreign investor disposes of an interest in U.S. real property, the investor is subject to U.S. tax under FIRPTA. This includes the disposition of REIT stock.  Senator Hatch’s bill increases and clarifies the existing FIRPTA exemptions that are available to foreign investors holding REIT stock.   For example, the bill increases from 5% to 10% the amount of REIT stock that an investor can hold and still qualify for the publicly traded REIT FIRPTA exception.  The bill also clarifies what it means to be a domestically controlled REIT, providing helpful guidance for another common FIRPTA exception.

While these changes are good, the bill is not all good news.  The bill also increases from 10% to 15% the general FIRPTA withholding rate.

If you deal with REITs, be sure to keep an eye on this bill for additional developments.

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