With the United States economy still limping forward toward a recovery, any boost that it can get will certainly be more than welcome. Clearly, one of the keys to getting the economy back on track is to get the housing market moving in a positive direction. While the housing market does appear to be moving in the right direction within many markets throughout the United States, more help is certainly needed – that is where a newly passed bill comes in handy.
The Real Estate Jobs and Investment Act (H.R. 5901), which easily passed through the House of Representatives on July 30 of this year, will effectively make U.S. real estate trusts a more attractive investment for foreign investors. How? Simply put, the new act will double the amount that a foreign citizen can invest in a Real Estate Investment Trust (REIT) before getting hit by the costly capital gains tax.
A REIT is a specific tax designation provided to corporations that are investing in real estate. The designation helps to reduce or even eliminate the company’s corporate income taxes. In return for this perk, the REITs must distribute 90% of their income, all of which is taxable, among investors. As such, REITs were designed to have a structure for investing in real estate that is similar to the way mutual funds are used to invest in stocks. REITs may be publicly or privately held, with public REITs being listed on the public stock exchange in the same was common stock is shared.
As it stands right now, only those foreign investors who own five percent or less of a REIT are exempt from being taxed. Obviously, this cap has long stood as a bit of a deterrent for those investors who might be interested in investing more than 5%, as making a larger investment will result in a loss of money in the form of taxes.
“Under current U.S. tax law, foreign investors generally do not pay capital gains taxes when they sell stock in a U.S. corporation,” states the executive summary of the notes for the Real Estate Jobs and Investment Act. “Foreign investors with a stake in [REITs]…are taxed more heavily.”
The new bill, which was originally introduced by Rep. Joseph Crowley (D-NY), hopes to bring more equality to how taxes are charged against foreign investors. It passed in the House by a wide margin of 402-11, but it still needs to be approved by the Senate before it will go before the President for his final approval.
I have contacts with cash investors looking for bulk properties. If you know of any quality projects where the developer is holding the bag and would like to see some angels with capital, let me know. You got anything like that in Denver Brian?
REIT incentive’s help the large corporations but across the board capital gain decreases or bonus depreciation incentives in depressed real estate markets is what is really needed to help fuel investment..