A US congressman is pressuring Washington to repeal a law which forces foreign real estate investors to pay up to 35 per cent of a building’s sale price to the Inland Revenue Service (IRS).
Republican Kevin Brady claims scrapping the 33-year-old tax on foreigners who buy American real estate would boost the US economy and create thousands of badly need jobs, not only in his home state of Texas but across America.
A 1980 property tax act requires any foreign buyer of real estate to pay 10 per cent of the sale price to the IRS, or up to 35 per cent if the buyer is a corporation or partnership. In a post-recession America, many are questioning whether the country is doing enough to welcome foreign investor and their money. And while the tax has added billions to the federal treasury, critics claim it is a relic that’s only hindering the chase for more global trade.
“My personal goal is to repeal it entirely,” said veteran Congressman Brady. “This is all about American jobs.”
Ditching the property tax has won widespread support. Real estate expert Kevin Crummy supports the abolition by citing one example: Asians invested nearly $10bn in commercial properties in London during the first 11 months of this year, more than they spent in the entire United States. “The city of London should not be kicking our butt, but it is, because we’ve put up this barrier that’s preventing people from making investments,” said Crummy of Los Angeles-based Eastdil Secured.
London, he said, offered a perfect example of why “something is seriously wrong”. While Asian investment in commercial property in the United States to November stood at $8.6bn, Asian investment in the city of London alone was 14 per cent higher, at $9.8bn. “We should be like six times London, or eight times London,” Crummy added.
Supporters of a repeal still face a major obstacles with the federal government $17-trillion in debt and politicians from all parties showing little enthusiasm for losing tax revenue.
Brady has, therefore, opted for a softly-softly approach. As a start he is lining up bipartisan backing for his Real Estate Investment and Jobs Act which would double the amount a foreigner could invest in a US real estate investment trust without paying the tax from 5 to 10 per cent.
“Once you have an esoteric tax on the books that nobody really understands in the first place, it’s almost impossible to get rid of it,” added Ronald Dickerman, president of Madison International Realty in New York.
“Discussing the law and its possible scrapping during a recent visit to Capitol Hill he said, “we had some pretty sophisticated folks from Congress at that meeting and very few even understood what this tax was all about.”
It is obvious that attracting new investment to the States is high on the current administration’s list. In October the White House invited more than 630 executives from 58 countries to Washington for a two-day investment seminar. And While President Obama doesn’t want to eliminate the foreign investment tax altogether, the president’s 2014 budget proposal included amending it to exempt foreign pension funds buying US real estate.
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