The Foreign Investment in Real Property Tax Act (FIRPTA) was enacted by Congress in 1980 as a means to tax the gains on non-US residents’ income from the sale of US real property. FIRPTA acts as a significant impediment to foreign investment in US infrastructure and real estate at a time when the country’s infrastructure needs are greater than ever.

As a practical matter, FIRPTA limits the amount that foreign investors are willing and able to invest in both US REITs. As enacted in 1980, shareholders of a listed real estate company were not subject to FIRPTA if they owned less than 5 percent of the company during the five years before they sell their stock, but above that threshold, foreign investors faced an unnecessary tax liability. FIRPTA also does not apply when a foreign investor sells domestically controlled REIT shares, so long as the majority of the shares are owned by US taxpayers.

After seven years of reform efforts headed by Representatives Kevin Brady (R-TX) and Joe Crowley (D-NY) and Senators Mike Enzi (R-WY) and Robert Menendez (D-NJ) and assisted by a critical reform proposal from the Administration, on Dec. 18, 2015 President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (PATH Act)  that accomplished three significant FIRPTA reforms. First,  the PATH Act increased from 5 percent to 10 percent the ownership stake that a foreign investor can take in a publicly-traded REIT without triggering FIRPTA liability and extended the provision to certain collective investment vehicles. Second, the PATH Act removed the tax penalty that FIRPTA imposes on foreign pension funds that invest in US real estate. Third, the PATH Act clarified when a listed REIT can be considered controlled by US persons so that sales of its stock are not subject to FIRPTA.

NAREIT commends Congress and the Administration for enacted these important reforms that break down unnecessary barriers to needed investment in American communities.



FIRPTA Archive


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