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Transwestern’s McNearney: Repeal of Foreign Real Estate Tax Would Boost U.S. Economy

HOUSTON – (By Dale King) – The chief investment officer of Transwestern, a privately held real estate firm made up of collaborative entrepreneurs, is one of many financial experts backing members of the U.S. House and Senate in calling for the repeal of the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).

“The time has come to repeal [FIRPTA] and unlock billions of dollars for potential investment in U.S. real estate,” stressed Tom McNearney in the latest edition of “The BRIEFING.” In that article, he weighs the advantages of repealing the act and also discusses the impact it may have on commercial real estate.

Under FIRPTA’s “antiquated double standard,” he said, the United States singles out foreign investors’ real estate dispositions for taxation, “a disincentive to investment that unfairly burdens the property sector alone.”

FIRPTA, enacted as part of the Omnibus Reconciliation Act of 1980, is a U.S. law that imposes income tax on foreign persons disposing of United States real property interests. Purchasers of these interests are required to withhold taxes on payment for the property.

In the meantime, the United States economy is suffering through a “lower for longer” recovery from its 2007-2008 nosedive. It is one of the lengthier financial bounce-backs since the close of World War II, he noted.

“Unemployment of 4.3 percent, a 16-year low, signals full employment and suggests wage growth and inflation ahead,” said McNearney. “However, the historically low labor force participation rate of 62.9 percent indicates remaining slack that could allow further employment gains and relieve excessive wage-growth pressure.

Strengthening the case for continued growth, he noted, are record-high household wealth at $94.8 trillion, improved corporate profitability and 2.5% percent annualized wage growth.

“We are approaching the fourth-longest recovery period since World War II, but aggregate GDP (gross domestic product) growth remains well below the historical average of 3.22%,” said McNearney.

Siding with the Transwestern investment officer is Peter Lowy, opinion contributor to the Washington, D.C.-based publication, The Hill. In a May 2017 article, he called FIRPTA “seriously flawed… Since its enactment, [it] has done nothing but cause tremendous harm to the U.S. economy and its citizens.”

“Republicans and Democrats agree that reforming FIRPTA would result in significant job creation in the U.S. and an immediate increase in U.S. infrastructure investment.”

Lowy noted that “minor FIRPTA reforms in 2015 generated tens of billions of dollars of new investment in the U.S., including in secondary markets. This increase in foreign investment, however, only scratches the surface of the economic benefits that reforming FIRPTA might bring, with one leading study concluding that an estimated $2.8 trillion of global capital is available for U.S. real estate.”

He pointed out that more than “95% of the Republicans and Democrats on both the Senate Finance Committee and the Ways and Means Committee signed on as co-sponsors of the 2015 reforms.”

McNearney rounded out the discussion by noting that the Real Estate Roundtable has educated lawmakers on the need to rescind FIRPTA, building bipartisan support over several years.

“In a year when tax reform is on the menu,” he noted, “repealing the measure would add tremendous liquidity that could offset slowing institutional allocations to real estate.

Based in Houston, Transwestern has 35 U.S. offices and assists clients through more than 180 offices in 37 countries as part of a strategic alliance with BNP Paribas Real Estate.

July 26, 2017 Realty News Report Copyright 2017

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