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

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.

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

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

Learning Objectives

After completing this course, you will be able to:

• Ascertain unique tax considerations for foreign investors in U.S. real estate
• Discern the tax consequences of purchasing U.S. real estate through a U.S. LLC, a foreign corporation, a U.S. corporation, or individual ownership
• Determine reporting obligations for non-U.S. owners of U.S. real estate
• Identify opportunities and potential pitfalls of using debt financing for U.S. real estate investment
• Consider potential future changes in the law in making structuring recommendations

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience at mid-level within the organization, supervising other preparers/accountants, in tax planning and preparation of complex tax forms and schedules for foreign investors in U.S. real estate. Specific knowledge and understanding of the IRS rules governing foreign investment in U.S. real estate, familiarity with relevant taxes including: income, withholding, FIRPTA, estate and gift; and working knowledge of the tax impact of using different ownership structures including: U.S. LLC, foreign corporation, U.S. corporation, trust or individual ownership.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).