H.R. 3588: Real Estate Reciprocity Act

This bill, known as the Real Estate Reciprocity Act, proposes several changes to U.S. tax laws concerning the purchase of real estate by non-citizens. Here’s a summary of the main points:

Tax Reporting Requirements

The bill mandates that all real estate purchases by non-citizens must be reported to the Internal Revenue Service (IRS). Specifically, individuals or entities buying real estate interests in the United States must provide information regarding the purchase directly to the IRS.

Elimination of Dollar Threshold

Previously, there was a dollar threshold for reporting real estate acquisitions by foreign persons. This bill removes that threshold, meaning any purchase by a non-citizen, regardless of the amount, will be subject to reporting if the buyer has not engaged in a trade or business in the U.S. during that year.

Foreign Ownership Restrictions

The bill requires the Secretary of State to submit a report detailing which foreign countries prohibit U.S. citizens from purchasing property. This report must be submitted within 60 days of the bill's passage and annually thereafter.

Tax on Acquisition by Disqualified Persons

One of the main features of the bill is the introduction of a tax on certain purchases made by "disqualified persons." This includes:

• Citizens of countries identified as "disqualified" based on the Secretary of State's report.
• Entities incorporated in or connected to those disqualified countries.

These individuals and entities will be subject to a tax equal to 50% of the purchase price of the real estate acquired in the U.S.

Definition of Disqualified Persons and Countries

The bill defines a "disqualified person" as anyone who is:

• A citizen from a disqualified country.
• An entity based in a disqualified country.
• Owned or controlled by individuals or entities from those countries.

A "disqualified country" is essentially any country that restricts U.S. citizens from purchasing property as identified in the aforementioned report.

Exemptions

There are exemptions for:

• U.S. lawful permanent residents.
• Individuals living in the U.S. for diplomatic reasons or those who have been granted asylum.
• Individuals with certain business connections to entities that do not meet the disqualified criteria.

Additionally, publicly traded companies that meet specific criteria will not be classified as disqualified entities, assuming they are not controlled by disqualified persons.

Reporting Obligations

The bill establishes a new reporting requirement for transactions involving disqualified persons. It mandates that the responsible party (such as an attorney or title company) involved in closing the transaction must file a report with the IRS that includes:

• The name and address of the buyer,
• A description of the property, and
• The purchase amount.

Penalties for Non-Compliance

There will be penalties for failing to comply with the reporting requirements established by this bill, which will be enforced through existing IRS regulations.

Effective Date

The provisions detailed in the bill will take effect for transactions occurring after the date of its enactment, meaning any relevant acquisitions after the signing of the bill into law will be subject to the new rules.

Relevant Companies

• PLT - This company could potentially be impacted as it operates in the real estate sector and may deal with foreign buyers.
• AMT - As a major provider of real estate services, changes in foreign investment regulations could affect its client base.