FIRPTA: Foreign Investment in Real Property Tax Act of 1980.

 

This income tax withholding act authorizes the United States to tax foreign persons on dispositions of U.S. real property interests.

 

The transferee must deduct and withhold a tax equal to 10% (or other amount) of the total amount realized by the foreign person on the disposition. The amount realized is the sum of (1) The cash paid, or to be paid (principal only), (2) the fair market value of other property transferred, or to be transferred, and (3) the amount of any liability assumed by the transferee or to which the property is subject immediately before and after the transfer. The amount realized is generally the amount paid for the property.

A foreign corporation that distributes a U.S. real property interest must withhold a tax equal to 35% of the gain it recognizes on the distribution to its shareholders (irs.gov).

• Example: Foreign investors are subject to exchange rate risk as well, which is most likely why foreign investors are more interested in all-cash deals versus leveraged deals. Additionally, there are some restrictions with FIRPTA: if an investor buys a foreign advisor REIT, then he or she cannot own more than 49 percent.

 

REIT: Real Estate Investment Trust.

 

A type of security that invests in real estate through property or mortgages and often trades on major exchanges like a stock. REITs provide investors with an extremely liquid stake in real estate. They receive special tax considerations and typically offer high dividend yields (Investopedia).

 

Trophy asset: The most appealing asset of a company that is typically worth the most or is responsible for the biggest contribution to a company's overall bottom line. Also known as a "marquee asset" (Business Dictionary).

 

Examples of foreign investment trophy assets include:

• Commercial real estate: Property that is used solely for business purposes. Examples of commercial real estate include malls, office parks, restaurants, gas stations, convenience stores and office towers. An investor usually owns the building and collects rent from each business that operates there (Investopedia).

• Residential real estate: Examples of residential real estate include undeveloped land, houses, condominiums and townhomes (Investopedia).