Extenders Bill Weighs FIRPTA Against REIT Spinoffs

WASHINGTON, DC—A bill introduced on Monday night by the US House Ways and Means Committee would eliminate a strategy used by a growing number of companies recently: the spinning off of their real estate holdings into a REIT. The objection to this practice is that some of these deals are done strictly to gain the tax advantages of a REIT structure and not for larger business purposes.

Whether the bill becomes law, at this stage, unclear. Congress is racing to conclude the nation's business by Friday, Dec. 11, when spending authority expires. In previous years that would be grounds for a government shutdown, but Speaker of the House Paul Ryan has said one is unlikely to happen -- rather, a short-term spending bill will be passed instead.

However, the scramble to get as much done as possible is on. While the business and investor community is sure to protest this measure -- real estate spinoffs have been a favored play by activist investors -- their voices could be drowned out by other interests. Or rather, their objections may be muted when they weigh the larger intent of the bill, which is to get the tax extenders passed on time.

See, the bill's main purpose is to extend the package of so-called tax extenders that businesses rely on, for another year. Congress has been wrangling over the measure for weeks, with 80% of the issues decided and 20% hotly contested. Given the ramifications of not having these measures extended, the business community may well be willing to swallow some unpalatable measures.

And as for the CRE community, there are some extenders that affect it as well and would like to see extended, such as the "extension of increased expensing limitations and treatment of certain real property as section 179 property" and the extension of the "15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements," among others.

And Then There's FIRPTA

In addition, FIRPTA was addressed in the measure, which is expected to increase foreign investment in US real estate.

When asked for his thoughts on the bill, CEO of the Real Estate Roundtable Jeff DeBoer had this to say to GlobeSt.com:

"All in all these are very positive provisions for real estate owners and investors and will strengthen the real estate markets, promote job creation and propel the economy forward.

"We look forward to Congress finding a way to get this bill across the finish line this year."