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Family Office Investment in U.S. Real Estate: Focus on Inbound Investment by Non-U.S. Investors

Blocker Corporations, REITs, BEAT, FIRPTA Withholding Rules and Exemptions

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Monday, June 7, 2021

Recorded event now available

or call 1-800-926-7926

This course will provide tax advisers with a practical guide to foreign investors' opportunities and challenges in U.S. real estate. The panel will discuss the impact of entity selection, FIRPTA withholding requirements, and blocker corporations. The webinar will also focus on the planning opportunities available to non-U.S. investors through the portfolio interest exemption to mitigate the Section 163(j) interest limitations.

Description

Significant benefits are available for foreign investors in U.S. real estate. Foreign individuals and corporations continue to face tax liability and withholding requirements under the existing FIRPTA rules on their dispositions of U.S. real property interests. Tax advisers to non-U.S. clients with U.S.-situs real property must be conversant with the specific tax advantages for this type of investment to avoid costly consequences.

A significant benefit available to foreign, but not U.S., investors in U.S. real estate is the portfolio interest exemption. The business interest deduction limitation found in Section 163(j) enhances this exemption value to non-U.S. investors. The long-standing provision allows blocker corporations to bypass the 163(j) limitations in deducting interest expenses paid to a non-U.S. lender on a registered debt, as well as avoid the 30 percent federal withholding tax on U.S.-sourced income.

Tax advisers must adhere to the election and documentation requirements to qualify for the portfolio interest exemption. The ability to avoid 163(j) limits will influence investment vehicle choice, as will the latest carried interest rules, limitations on interest expense, and recent depreciation changes.

Listen as our panel of experienced tax professionals discusses the tax consequences of foreign investors buying, holding, and disposing of U.S. real estate.

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Outline

  1. Overview of various considerations in structuring
    1. Family office investing
    2. U.S. federal income tax basics
    3. Getting to preferential capital gains rates
    4. Carried interest: 1061 and 3-year holds
    5. Using the 199A deduction?
    6. Deferring the gain: 1031, DSTs, and QOZ structures
    7. Deferring the gain: Installment sale rules (& FIRPTA)
  2. Non-U.S. investor inbound structuring
    1. Tax planning framework
    2. U.S. estate tax "Blockers"
    3. FIRPTA Withholding
    4. Options for holding structures for residential real property
    5. Other non-U.S. investor structures: Domestically controlled REITs
    6. Information reporting considerations
  3. Optimizing inbound structuring with debt
    1. Income tax planning with debt
    2. Exemptions from 30% withholding on interest: Treaty and portfolio interest exemption
    3. Exceptions to portfolio interest exemption: 10% shareholders and related party CFCs (post 958(b)(4) repeal)
    4. Section 163(j) business interest deduction limitation rules, including small business exception and electing real property trade or business exception
    5. 267A: Payment to hybrid entities or hybrid transactions
    6. Other limitations for corporate borrowers: BEAT, AHYDO, and 385 "Funding" Rule
  4. Potential changes on the horizon and considerations with structuring

Benefits

The panel will review these and other key issues:

  • General U.S. tax issues and planning concepts related to real estate
  • U.S. tax issues and considerations for non-U.S. investors, including tax implications of purchasing U.S. real estate individually or through a U.S. LLC vs. a foreign corporation, a U.S. corporation, or a trust
  • How to optimize U.S. income taxation to non-U.S. investors through the use of debt
  • Potential changes on the horizon that may impact real estate taxation

Faculty

DePasquale, Paul
Paul F. DePasquale
Partner
Baker & McKenzie

Mr. DePasquale advises individuals and multinational entities on international and domestic tax planning, cross-border...  |  Read More

Melrose, Michael
Michael D. Melrose
Partner
Baker & McKenzie

Mr. Melrose is a member of the Firm's tax and wealth management groups. He frequently advises high net worth US and...  |  Read More

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