US Federal Laws Affecting Foreign Buyers
The following information was compiled in May 2001 and is provided with the permission of the National Association of REALTORS®.
In the United States, real estate transaction is usually regulated by each individual state’s real estate regulatory agency. The direct ownership of real property is not restricted at the federal level though non-U.S. citizens may not be permitted to purchase public land maintained by the Bureau of Land Management within the federal government (Land Sales and Disposals, Bureau of Land Management Lands & Realty).
Sales of United States real estate by foreign investors may be subject to U.S. income tax. In 1980, Congress passed the Foreign Investment in Real Estate Property Tax Act (FIRPTA) because it thought foreign investors were receiving more favorable tax treatment on some of their U.S. real estate investments than U.S. residents (Martin, Patrick W., Tax Implications of Foreign Investment in U.S. Real Estate, Procopio, Cory, Hargreave). FIRPTA created a taxation method by which non-U.S. residents are taxed upon their gains derived from ownership of U.S. real estate. Starting in January 1985, 10 percent of the purchase price must be withheld by the purchaser on a sale by a foreign seller unless certain requirements are fulfilled (“Foreign Investors”, Real Estate Transactions: Purchase and Sale of Real Property, § 1.01[4][d], 2000).
A foreign national investing in U.S. real property may also need to comply with the non-tax reporting requirements under the International Investment Survey Act of 1976 (IISA) and the Agricultural Foreign Investment Disclosure Act of 1978 (AFIDA) (Ernst & Whinney, Acquiring U. S. Real Estate: Tax and Business Considerations for the International Investor, 1989). Both laws were enacted to monitor investments of foreign sources in U.S. real property.
The purpose of IISA is to obtain information on foreign investment in the U.S. real property and to analyze and formulate U.S. policy on these investments, particularly the impact on the economies of the U.S. and other countries. The information obtained under IISA is confidential and is used only for Department of Commerce analytical or statistical purposes or for enforcement proceedings imposed under IISA. To address some concerns about foreign investment in U.S. farmland in 1970s, Congress passed AFIDA with the intention to provide a uninterrupted source of available information on foreign investment in U. S. farmland. Any acquisition or transfer of agricultural land by a foreign national must be reported to the U.S. Department of Agriculture. Required information includes owner’s identity, the property’s value, the type of transaction through which the property was bought, the date of transfer, and the current and intended use for the property.
Some federal and state laws impose reciprocity requirements, i.e., they will permit the particular investment only if the investor's country of origin admits U.S. enterprises on the same or similar terms. Although reciprocity requirements are not common in the U.S., they are sometimes found in such fields as the establishment of bank branches, communications, international air transport, and participation in certain mineral interests on federal lands (Doing Business in the United States: U.S. Regulation of Foreign Investment).
Federal law permits only citizens and corporations organized under the laws of any state within the United States to exploit mineral lands owned by the federal government either by purchasing or leasing lands. Even though foreigners are prohibited from purchasing mineral lands, they are accorded leasing rights if their country of origin grants U.S. citizens similar rights.
In addition to the federal laws, some states limit foreign ownership of real property within their state boundaries, and have restrictions and/or reporting requirements that affect the purchase of real estate by foreigners. While a foreign national in New York may take, hold, convey and dispose real property, over half of the states have some restrictions on the ownership of land by foreigners. Many of the state laws and regulations apply only to agricultural land and have varying degrees of restrictions.
However, some states set limits on the number of acres for which the land may be used. Others extend to foreigners the same treatment U.S. citizens are given in the foreigner's home country (Burkard, Peter H., Esq., Foreign Direct Investment: Restrictions and Reporting Requirements).
Concerned by an excess of foreign ownership of real property, several states have imposed strict guidelines on foreign ownership or even prohibited it. For instance, nonresident individuals in Kansas and Wyoming, who are not eligible for U.S. citizenship, cannot acquire or own real estate unless that right is granted by treaty (Powers, Timothy E., Foreign Investment in U. S. Real Estate, 1990). In New Hampshire, nonresident ownership is fully proscribed, while Missouri limits non-agricultural land ownership by nonresidents to five acres or less. Oklahoma prohibits a nonresident from acquiring land, and if a resident landowner subsequently leaves the state, any real property owned by the departing taxpayer reverts to the state unless disposed of within five years (Ernst & Whinney, Acquiring U. S. Real Estate: Tax and Business Considerations for the International Investor, 1989). Because state laws change frequently, it is advisable that any foreign entity or resident check state and local laws carefully before acquiring real property in the United States.
Information on state regulation of foreign ownership can be found in the book, Foreign Investment in U.S. Real Estate by Timothy E. Powers. You may also visithttp://www.law.cornell.edu/topics/state_statutes3.html for the most current information on state laws.
Resources:
Committee on Foreign Investment in the United States
Office of International Investment
Department of the Treasury
1500 Pennsylvania Avenue, N.W., Room 4201
Washington, DC 20202
Lands and Realty Group
1849 C Street, Room 406-LS
Washington, DC 20240
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