New REIT Rule May Challenge Foreign Investment in US Real Estate

A new IRS final rule affecting domestically controlled real estate investment trusts may significantly limit their use and thereby make U.S. real property less attractive for foreign investors.

T.D. 9992, released on April 24, 2024, requires that, when testing whether a real estate investment trust (“REIT”) is a domestically controlled REIT (“D-REIT”) during its five-year testing period and some of the REIT’s stock is held (directly or indirectly) by a domestic C corporation, the REIT must “look through” to the C corporation’s shareholders if the C corporation (i) is not publicly traded and (ii) is owned 50% or more ...