The U.S. House of Representatives recently passed the Real
Estate Jobs and Investment Act of 2010 (the "Act"),
proposing certain changes to Section 897 of the U.S. Internal
Revenue Code (the "Code") regarding the taxation of
foreign investment in U.S. real property. Before the Act can become
law, it needs to be passed by the U.S. Senate and signed by the
President. Given recent disagreements between the House and the
Senate over several tax bills, the likelihood and timing of any
action by the Senate is uncertain and it is difficult to make any
predictions about whether the Act will in fact become
Specifically, the Act would amend Sections 897(c)(3) and 897(h)
of the Code to increase the threshold for the beneficial treatment
available to certain minority shareholders of publicly traded REITs
to 10 percent from the current 5 percent. The Act would also extend
this beneficial treatment on a look-through basis to minority
shareholders of certain publicly traded non-U.S. corporations that
in turn own an interest in a U.S. REIT.
Currently, Section 897(c)(3) provides that interests of 5
percent or less in the stock of a publicly traded U.S. corporation
will not be treated as a United States real property interest (a
"USRPI"), and therefore gain recognized by a non-U.S.
shareholder on a sale of the stock will not generally be subject to
U.S. tax, provided the stock is regularly traded on an established
securities market. The Act would increase this threshold to 10
percent in the case of a publicly traded REIT. In addition, the Act
would provide a look-through rule for a non-U.S. corporate
shareholder of a U.S. REIT if the shareholder is itself publicly
traded and is entitled to treaty benefits with respect to dividends
received from the REIT (the Act refers to such a shareholder as a
"qualified shareholder"). The look-through benefits would
be available to a shareholder who owns 10 percent or less of the
The Act would make similar changes to Section 897(h) of the Code
to provide that distributions from an REIT that are attributable to
a sale of real property by the REIT would not be treated as gains
received from a sale of a USRPI with respect to distributions made
to a shareholder who owns 10 percent or less (increased from the
current 5 percent threshold) of a publicly traded REIT, and with
respect to a person that owns 10 percent or less of a
"qualified shareholder" of an REIT.
1. Sponsored by Congressman Joseph Crowley, the Act
appears to replace the Real Estate Revitalization Act of
2010 proposed earlier in the year by Congressman
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The CRA provides new housing rebates for individuals who have purchased or built a new house or have substantially renovated a house or made a major addition to a house who plan on living in it personally or letting a relative live there.
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