New Legislation Relating to the Taxation of REITs and Foreign Investment in U.S. Real Property

22 December 2015
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Key takeaways

  • On December 18, President Obama approved the Consolidated Appropriations Act, 2016 (the “Act”), which provides several significant exemptions from U.S. federal income tax for certain non-U.S. persons investing in U.S. real property. In particular, the Act exempts non-U.S. pension plans from tax under the U.S. “FIRPTA” rules, allowing such plans to invest in U.S. real property in a more tax-efficient manner.
  • The Act also provides new rules intended to curtail tax-free spin-off transactions in which an operating business transfers real estate holdings into one or more REITs. These rules are generally effective for any spin-off distribution occurring on or after December 7, 2015, unless it is the subject of an outstanding IRS ruling request.
  • The Act makes a number of technical changes to rules that are generally applicable to REITs and extends many expiring tax provisions.