Tax Changes to Increase Foreign Capital into the US Real Estate Market

variety of money currenceIt is no secret that investors from around the globe are looking to American real estate as a more stable asset class (in comparison to the stock market), since it has a strong potential for growth. The U.S. government is taking additional measures to strengthen this avenue through the PATH Act of 2015, which stands for Protecting Americans from Tax Hikes.

The PATH Act was primarily designed to protect investors from additional taxes and will keep several taxes from renewing after they sunset. This act will also work alongside a reform in the Foreign Investment in Real Property Tax Act (FIRPTA), which had international investors paying taxes on gains made on real estate.

A FIRPTA reform will encourage international investment by providing breaks on those taxes from gains on REITs and other stocks as well as the ability for foreign pensions to own U.S. real estate. Overall, financial experts believe this reform will increase the amount of foreign capital that enters the U.S. to purchase real estate, and could be beneficial for the U.S. economy (Source).

There are many reasons for international investors to add U.S. real estate investments to their portfolios. The stability of the U.S. dollar as well as numerous metros across the country are currently offering impressive returns, and many foreigners have already taken notice. From April 2014 to March 2015, the National Association of Realtors measured that approximately 209,000 houses were sold to foreign buyers, which totaled to over $104 billion in home sales. The five countries that made up over 50% of those sales were foreigners from Canada, China, Mexico, India, and the United Kingdom. This increase from last year’s numbers of $92.2 billion shows that foreigners purchasing US real estate is only rising.

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