Foreign investors in U.S. real estate face a number of hurdles when considering the structure of their investments. Direct ownership of U.S. real estate can subject the foreign investor to U.S. federal, state and local taxation on the income attributable to the real estate, and under current law may also result in U.S. federal income taxes on gains at exit under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). For this reason, many foreign investors choose to invest in U.S. real estate directly or indirectly through U.S. corporations (so-called blockers) that “block” the applicable U.S. tax filing and payment obligations, which are satisfied at the blocker level. Unfortunately, this subjects the investment to U.S. corporate income taxes and a sale of stock of the blocker would generally still result in tax payment and filing requirements on the part of the foreign investor under FIRPTA.
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