Congress gave a nice Christmas present to the apartment building industry in the omnibus budget package, passed just before the holidays.
The budget package includes a long list of good things for apartment investors. International investors finally got some relief from the punishing Foreign Investment in Real Property Act (FIRPTA). Affordable housing investors will benefit from the extension of provisions to the federal low-income housing tax credit (LIHTC). Congress also renewed bonus depreciation, small business expensing and the New Markets Tax Credit Program, in addition to tax benefits that reward energy-efficient buildings.
The bill passed through both houses of Congress December 18, and President Obama signed it the same day.
Foreign investors get relief
Many foreign investors in U.S. real estate will no longer have to pay the heavy penalties imposed by FIRPTA, which amounted to a 30 or 45 percent tax on many types of profits made by foreign investors in U.S. properties. In 2007, an IRS ruling allowed FIRPTA to tax profits of investments in REIT stocks. Typically, foreign investors don’t pay any taxes on their investments in the United States. They can buy stock in U.S. companies like Apple or Facebook, for example, without worrying Uncle Sam will tax their profits.
The changes to FIRPTA are “the most significant” since the law’s enactment in 1980, according to a statement from the Real Estate Roundtable, based in Washington, D.C. Foreign pension funds that invest in U.S. real estate no longer have to pay the tax. Also, foreign investors can now own a stake of up to 10 percent in a U.S. REIT without triggering FIRPTA. Before the change, the trigger was set at 5 percent. That will make a significant difference for private REITs, which are often small enough so that a foreign investor could own a significant share of the company.
Boosts for sustainable development, community development, affordable housing
Advocates for energy-efficient, green development welcome the extended tax deduction for energy-efficient commercial buildings. The budget package extends the deduction through 2016 and toughens the requirements buildings need to meet to get the deductions. The existing law ran through 2014 and gave a $1.80-per-sq.-ft. tax deduction to properties that beat by 50 percent the efficiency standards set out in the 2001 American Society of Heating, Refrigerating and Air-Conditioning Engineers Standard 90.1. In the extension, buildings will have to meet ASHRAE’s 2007 standard to get the deduction.
View the entire article here in National Real Estate Investor.