Foreign Investment in Real Estate

Tax Increase for Sales Exceeding $1 million

The Foreign Investment in Real Property Tax Act ("FIRPTA") provides that the disposition of a U.S. real property interest by a foreign person for the purposes of U.S. income taxation is subject to income tax withholding. Under FIRPTA, the buyer is responsible for determining if the seller is a foreign person for the purposes of U.S. income taxation and if the buyer fails to do so, the buyer could be liable for the tax.  FIRPTA withholding is imposed at a rate of 10% on the amount realized from the sale (i.e. the purchase price). Changes to FIRPTA, effective February 17, 2016, increase the amount of the tax to 15% for sales where the amount realized from the sale (i.e. the purchase price) exceeds $1 million. The change applies to closings that occur after February 16, 2016. Happy Investing!

Renters Flee City

I recently returned from a weekend in Vancouver, British Columbia, Canada. It is an expensive city for both renters and homeowners in terms of housing costs. So expensive, in fact, that Vancouver Metro News reported that 60% of all renters and 43% of Vancouver homeowners were considering moving out of the city because of the cost of housing, according to a survey released in the last week.

45% of the survey respondents reported they were miserable or uncomfortable with the astronomical costs of housing. 87% worried that the next generation will not be able to afford a house in the region, and 70% were in favor of some type of government intervention.

The most popular intervention, with 82% support, was for a vacancy tax on empty, investor-owned properties.

79% supported the idea of imposing an extra property transfer tax on foreigners. Two thirds of respondents believe that foreign ownership is contributing to high housing costs in Vancouver. In fact, both of the last Airbnb apartments we rented in Vancouver were owned by investors from Dubai.

There are many parallels between Vancouver and Seattle. Seattleites have been forewarned that these are the kinds of issues, along with rent control, that may be proposed as our cost of housing goes up.

Happy Investing!